Why is Tripadvisor Stock So Cheap?

It’s not demand for hotels that drives this travel stock.

Andrew Willis 19 May, 2023 | 4:38AM
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Andrew Willis: Perhaps it was the pandemic lockdowns, but right now predictability is in high demand among consumers looking to venture outside.

From restaurants to tours, one of the most trusted sources of information for travellers is TripAdvisor (TRIP) – even as Google (GOOGL) gobbles up its hotel bookings. Investors may have sold TripAdvisor stock as its branded hotel business suffered at only 78% of 2019 levels last quarter - down from 90% the quarter before that.

But senior equity analyst Dan Wasiolek says investors are severely discounting the company’s experiences and dining assets, which now make up 40% of the company’s revenues and posted sales at 261 and 125 percent of 2019 levels last quarter, respectively. We’re increasing our forecast for these two segments – while also keeping an eye on any competing integrations in Google Maps.

For Morningstar, I’m Andrew Willis. 

 

bulls Bulls Say

  • Opportunities exist from entertainment, bolstered by the Discovery Family network, owned production capabilities, and film tie-ins, supporting product demand.
  • Stock ownership is compelling for income investors. The firm has a more than 5% yield and has paid out around $1.8 billion in dividends in the past five years. The dividend payout ratio should remain around 40% over the long term as free cash flow rises.
  • The firm enjoys a stable expense base and should be able to leverage operating margins to above 20% as higher margin games become a larger percentage of the total sales mix.

bears Bears Say

  • The market for traditional toys could continue to shrink as a percentage of the total as technology plays a more dominant role in product selection and children shift to more digital toys at a younger age.
  • The consolidated retail channel leaves Hasbro at the mercy of its largest outlets (Hasbro's top two retailers account for around one fifth of sales), which could affect profits, depending on demand for promotional spending.
  • Dislocation from the supply chain and bloated retail network inventories could intermittently weigh on profits, particularly during periods of economic duress

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alphabet Inc Class A172.93 USD-1.69Rating
TripAdvisor Inc17.98 USD0.28Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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