It hasn't been a great morning session for Booking investors, who have watched their shares sink by -2.2% to a price of $2981.51. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Booking's Valuation Is in Line With Its Sector Averages:
Booking Holdings Inc. provides travel and restaurant online reservation and related services worldwide. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33. In contrast, Booking has a trailing 12 month P/E ratio of 25.9 based on its earnings per share of $115.29.
There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.
One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.
Booking's PEG ratio is 0.79, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
The Business Runs With Low Leverage Levels:
| 2018-02-27 | 2019-02-27 | 2020-02-26 | 2021-02-24 | 2022-02-23 | 2023-02-23 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $12,681 | $14,527 | $15,066 | $6,796 | $10,958 | $17,090 |
| Operating Margins | 36% | 37% | 35% | 9% | 23% | 28% |
| Net Margins | 18.0% | 28.0% | 32.0% | 1.0% | 11.0% | 18.0% |
| Net Income (MM) | $2,341 | $3,998 | $4,865 | $59 | $1,165 | $3,058 |
| Net Interest Expense (MM) | -$97 | -$269 | -$266 | -$356 | -$334 | -$391 |
| Depreciation & Amort. (MM) | -$363 | -$426 | -$469 | -$458 | -$421 | -$451 |
| Earnings Per Share | $46.86 | $83.26 | $111.82 | $1.43 | $28.18 | $76.35 |
| EPS Growth | n/a | 77.68% | 34.3% | -98.72% | 1870.63% | 170.94% |
| Diluted Shares (MM) | 50 | 48 | 44 | 41 | 41 | 40 |
| Free Cash Flow (MM) | $4,950 | $5,780 | $5,233 | $371 | $3,124 | $6,922 |
| Capital Expenditures (MM) | -$288 | -$442 | -$368 | -$286 | -$304 | -$368 |
| Net Current Assets (MM) | -$5,155 | -$5,495 | -$5,636 | -$4,775 | -$4,318 | -$6,781 |
| Long Term Debt (MM) | $10,064 | $9,815 | $7,640 | $11,029 | $8,937 | $11,985 |
| Net Debt / EBITDA | 0.54 | 0.61 | 0.23 | 0.92 | -0.08 | 0.02 |
Booking has low leverage, decent operating margins with a stable trend, and a strong EPS growth trend. Furthermore, Booking has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and a decent current ratio.
