One of the shares in my portfolio has halved since March. But I think the growth stock now looks like even better value than when I bought. So I am considering adding more to my portfolio in the coming month.
Well-known brand with unique position
Here is a question: what is fhe first website you think of when it comes to hotel reviews?For a lot of people, the answer is TripAdvisor (NASDAQ: TRIP).
In fact, one of the things I like about the company is the fact that it has such a strong position in its market. That is a market with a network effect, meaning the more reviews that are posted, the more useful the platform becomes, in turn hopefully driving further growth.
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But while TripAdvisor has a strong reputation for reviews, it has not always monetised that well. It has a market capitalisation of $2bn. That pales compared to the $130bn market-cap of rival Booking Holdings. By offering a range of travel agency services like hotel booking, it has been able to monetise reviews far more effectively than TripAdvisor.
Still, I think TripAdvisor’s brand and user base is valuable. Its business is more than just the core reviews offering. For example, it also owns experience platform Vlator, where revenues in the first quarter grew 13% year-on-year and are now close to that of the core TripAdvisor-branded business.
Attractive valuation
It has been a tough five years for the business, but in the past several years it has shown signs of shaking off the pandemic-era blues.
Last year saw record revenues of $1.8bn. Net income was just $10m, implying a very tight profit margin. But cash flows from operations were $235m. Given its unique brands, I think the company has pricing power that can help it increase profit margins in coming years and hopefully generate sizeable cash flows too.
At less than nine times last year’s operating cash flows, I see the valuation as attractive.
Risks on the road
Still, a share does not halve in value in a matter of months for no reason. I think concerns about the revenue risks posed by weakening travel demand explain part of the fall. But the bigger cause has been the news that a possible takeover bid for the company did not materialise.
As a long-term investor, that is fine with me. I can now buy more of this growth stock at what I see as an attractive valuation.
What about the risk of weaker travel demand? I am concerned by it. However, I think TripAdvisor could do well nonetheless. Business travel has been coming back and leisure demand remains strong. Even if the economy weakens, demand for more local experiences could increase and I see that as positive for TripAdvisor.
With its strong brand, large customer base and strong growth opportunities, especially for Vlator, I plan to keep holding – and I am thinking about buying more shares in September.
