Booking Holdings Stock Looks Fully Priced

Booking Holdings’ stock (NASDAQ: BKNG) at around $2249, is 14% higher than its mark before the drop in February due to the coronavirus outbreak becoming a pandemic. In fact, the online travel giant’s stock is up 39% from levels seen since the beginning of November 2020. The major reasons for the stock price gain were the announcement of two Covid vaccines, in addition to stronger-than-expected Q3 results, and the U.S. federal elections. And, we believe that all the good news appears to be factored into the company’s stock price at the present time. The fact of the matter is that leisure travel shall return at some point, but business travel has a very tough road ahead as virtual collaboration tools have never been cheaper or more easily accessible. Needless to say, growing competitive threats such as Airbnb and a heavy debt load of close to $11 billion could result in Booking Holdings’ stock price declining in the longer term.

Booking Holdings stock has underperformed the broader markets between fiscal 2018 and now. The company’s stock is around 30% higher than it was at the end of fiscal 2018, compared to 51% growth in the S&P. Our dashboard, What Factors Drove 30% Change in Booking Holdings Stock Between Fiscal 2018 and Now? provides the key numbers behind our thinking, and we explain more below.

Booking Holdings’ revenues grew 4% from $14.5 billion in 2018 to $15.1 billion in 2019. In addition, earnings growth, on a per-share basis, was higher by a solid 34%. This was driven by a 17% growth in net margins from 27.5% to 32.3% and a 9% decline in shares outstanding during this period.

Finally, Booking Holdings’ P/E ratio declined from about 20x at the end of 2018 to 18x at the end of 2019. This drop can be associated with competitive pressure from Google and the rise of Airbnb, in an already maturing travel market. The P/E ratio has expanded slightly to about 20x now, given the optimism surrounding the vaccine. Going forward, there is a downside risk when the current P/E is compared to levels seen in the last year.

How Is Coronavirus Impacting Booking Holdings Stock?

The travel sector was beaten down in 2020 as the onset of the pandemic led people to stop traveling, forcing travel companies such as BKNG to close global offices and eliminate a quarter of their workforce. As evident, Booking Holdings’ revenues declined a major 53% year-over-year (y-o-y) so far. In the first nine months of 2020, profits were also down 94%. For Q3, the travel booking site saw demand rebound, but the numbers were still far below 2019 levels. The company’s revenue grew sequentially from only $63o million in Q2 2020 to $2.6 billion in Q3 2020. But the revenues were still down 48% from year-ago quarter levels in Q3. A similar sequential rebound was seen in rental car days, airline tickets, and room-nights booked in Q3.

That said, the online travel booking site stock could weather the Covid storm based on its strong liquidity position. The company has $14.9 billion in cash and investments, and almost $850 million in free cash flow (generated in Q3). And with roughly half of its expenses coming from sales and marketing, Booking Holdings has high variable costs, making it easier for the company to conserve cash and survive the crisis, including a tough 2020 holiday period and likely limited gains in travel demand in the first half of 2021. 

With Covid-19 cases still surging and many parts of the world back into lockdowns, Booking Holdings will continue to see a difficult time in the near-term. While the vaccine rollouts have already begun, the travel industry is now heavily reliant on the demand to return to normal.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams