Today we're going to take a closer look at large-cap Consumer Discretionary company Expedia, whose shares are currently trading at $152.5. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
The Market May Be Overvaluing Expedia's Earnings and Assets:
Expedia Group, Inc. operates as an online travel company in the United States and internationally. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.96 and an average price to book (P/B) ratio of 4.24. In contrast, Expedia has a trailing 12 month P/E ratio of 27.9 and a P/B ratio of 12.75.
When we divideExpedia's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.64, 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 Company's Revenues Are Declining:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $11,223 | $12,067 | $5,199 | $8,598 | $11,667 | $12,570 |
| Revenue Growth | n/a | 7.52% | -56.92% | 65.38% | 35.69% | 7.74% |
| Operating Margins | 6% | 7% | -52% | 2% | 9% | 8% |
| Net Margins | 4% | 5% | -2% | 0% | 3% | 7% |
| Net Income (MM) | $406 | $572 | -$116 | $15 | $352 | $842 |
| Net Interest Expense (MM) | $190 | $173 | $360 | $351 | $277 | $244 |
| Depreciation & Amort. (MM) | $676 | $712 | $893 | $814 | $792 | $798 |
| Earnings Per Share | $2.65 | $3.77 | -$19.0 | -$1.8 | $2.17 | $5.6 |
| EPS Growth | n/a | 42.26% | -603.98% | 90.53% | 220.56% | 158.06% |
| Diluted Shares (MM) | 153 | 150 | 141 | 150 | 162 | 138 |
| Free Cash Flow (MM) | $1,097 | $1,607 | -$4,631 | $3,075 | $2,778 | $1,900 |
| Capital Expenditures (MM) | $878 | $1,160 | $797 | $673 | $662 | $846 |
| Current Ratio | 0.64 | 0.72 | 1.04 | 0.87 | 0.82 | 0.8 |
| Total Debt (MM) | $9,674 | $11,965 | $11,480 | $15,137 | $14,772 | $9,949 |
| Net Debt / EBITDA | 5.2 | 5.36 | -4.45 | 11.03 | 5.69 | 2.64 |
Expedia has weak revenue growth and decreasing reinvestment in the business, consistently negative margins with a positive growth rate, and a highly leveraged balance sheet. On the other hand, the company benefits from a strong EPS growth trend and irregular cash flows.
