Should You Buy Booking Holdings Stock At $2200 Levels?

Booking Holdings’ stock (NASDAQ: BKNG), the world’s largest online travel agency, that offers services from lodging to airline tickets to car rentals, has gained around 57% – moving from about $1431 to $2248 in the last twelve months. However, Booking Holdings’ revenues have fallen 61% to a consolidated figure of $5.6 Bil for the last four quarters from the consolidated figure of $14.5 Bil for the four-quarter period before. We believe that this revenue and stock price mismatch looks like a reason to sell the stock – as BKNG stock remains highly valued at a price-to-sales ratio of 14x. The company’s current P/S multiple could likely see a downward correction based on its historical multiples in the short to medium term. Our dashboard, Buy or Fear Booking Holdings Stock provides the key numbers behind our thinking, and we explain more below.

Booking Holdings stock has underperformed the broader markets between fiscal 2018 and now. The company’s stock is around 32% higher than it was at the end of fiscal 2018, compared to a 144% growth in the S&P. Growing competitive threats such as Airbnb, coupled with a heavy debt load of close to $13 billion, could prove to be a headwind for the company going forward.

Booking Holdings’ revenues declined a massive 53% from $14.5 billion in 2018 to $6.8 billion in 2020. In addition, revenue per share (RPS) growth was lower by 45%. BKNG’s P/S was around 6x during the 2018-2019 period. It appeared higher in 2020 as the reported drop in RPS led the P/S ratio to appear higher at that point. The company’s P/S ratio grew from about 5.6x at the end of FY 2018 to 13.3x at the end of FY 2020. While the company’s P/S is about 13.5x now, it could potentially see a retracement closer to its historical levels.

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 55% year-over-year (y-o-y) in 2020. In addition, profits were also down a whopping 99%. The business continued to plunge in the first quarter, due to various lockdown restrictions in many parts of the world. The company’s revenue was down 8% sequentially from $1.24 billion in Q4 2020 to $1.14 billion in Q1 2021. In fact, BKNG’s revenues declined 50% from year-ago quarter levels in Q1. However, Booking Holdings was able to limit its net loss to $1.34 per share (which was better than analysts’ consensus expectation for a loss of $7.48 per share), as it scaled back sharply on marketing spending in Q1. It should be noted that roughly half of BKNG’s expenses come from sales and marketing. The company has a high variable cost, which makes it easier for it to conserve cash in difficult economic times. As it is, the company reported $16.4 billion in cash and investments in Q1. Further, BKNG intends to build a platform that will serve all travelers’ needs in one place. For the same purpose, the company announced its partnership with Viator – where booking platform users can take advantage of Viator’s 400,000 tours and activities.

That said, we also believe that the stock has significant upside potential over a long-term horizon. Mass vaccinations are helping the travel industry to recover and the company has noticed encouraging trends in countries where vaccine distribution is being organized successfully (the UK, U.S., and Israel) except Asia where vaccine distribution is rather slow. In fact, the company mentioned that bookings in Israel, which has vaccinated more than half of its people, are now up more than double-digits from 2019 levels. Similarly, the U.S. recorded positive growth results as the Q1 2021 room night number was higher than the pre-pandemic level.

For further comparison among peer groups, it is helpful to see how they stack up. BKNG Stock Comparison With Peers summarizes how Booking Holdings compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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