Is Tripadvisor Overvalued?

Tripadvisor Revenue Growth

In 2022, analysts expect Tripadvisor’s revenues to grow by 51.8 percent compared to last year.

While it may seem like a large figure, this pop in revenue growth is reflective of the difficulties Tripadvisor and other travel companies have encountered over the past two years.

In 2020 and 2021, travel companies saw muted revenues. As restrictions ease and consumer behavior returns to normal in 2022, analysts expect to see high levels of growth over the previous year. 

Tripadvisor Earnings Growth

The consensus estimate for Tripadvisor’s next earnings report suggests the company will report $-0.04 per share. While obviously a loss, this is a substantial improvement from the same period the previous year, when the company reported $-0.58 per share.

Forecasts for the fiscal year ending in December 2022 project total earnings of $0.52 per share. In the year that ended in December 2021, Tripadvisor is expected to have lost $0.89 per share.

Based on these consensus estimates, it’s clear that 2022 should be a much better year for Tripadvisor than 2021. The financials look slightly less rosy, though, when pre-pandemic numbers are brought in for comparison. In Q4 2019, for instance, Tripadvisor reported $0.89 per share in earnings.

Tripadvisor Stock Forecast

Based on 14 current analyst ratings, the median target price for Tripadvisor over the next 12 months is $33.50. Tripadvisor current share price has an upside of 18.7 percent at the median target price.

The lowest price forecast placed the stock at $23, a loss of 18.5 percent. The highest target is $60, a potential gain of 112.6 percent.

Given that it is far out of the range of other forecasts, though, the high price target should likely be taken with a grain of salt.

Will Tripadvisor Go Up?

Based on current analyst estimates, the balance of probabilities favors Tripadvisor shares to rise this year. The question, of course, is how much shares could rise.

If the median analyst target price is correct, investors who buy and hold Tripadvisor could see reasonable returns over the next 12 months. From a discounted cash flow forecast perspective, TRIP share price has upside potential to $36.78 at the time of research.

Aside from analyst ratings, there’s also a general cause for bullishness on travel stocks. Industry analysts believe that travel will pick up again in the spring and summer of 2022.

While travelers will likely still be cautious about COVID-19, the consensus seems to be that people will travel differently, rather than eschewing vacation plans altogether. Tripadvisor is generally regarded as a stock that investors can use to take advantage of travel recovery as the pandemic eases off.

With all of this said, there’s clearly no guarantee that shares of Tripadvisor will go up substantially this year. Even among analysts, there is at least a minority view that the stock will fall based on current trends. Misses in revenue, earnings or other metrics could lead to muted gains or even moderate losses.

Is Tripadvisor Overvalued?

Although Tripadvisor is obviously beginning to experience a recovery from the low points of the pandemic, there’s still a good argument to be made that it’s overvalued. The ratio of the stock’s price to the most recent set of pre-pandemic earnings is over 30.

Given low growth and the potential for further disruptions caused by COVID-19, this is an unusually high valuation. Barring a recovery that unexpectedly brings earnings well above where they were in 2019, Tripadvisor is overvalued.

According to the cash flows, however, the stock still has significant upside as discussed above.

What Could Go Wrong For TRIP Share Price?

Tripadvisor faces a variety of risk factors that could make it somewhat less attractive than analyst forecasts initially suggest. To begin with, travel companies could face an uphill battle in 2022 as the Omicron variant of COVID-19 continues to spread.

Although travels stocks are currently faring well as investors see fewer disruptions ahead, concerns over the virus could still affect consumer behavior. If countries or states begin shutting down again later in the year, travel companies like Tripadvisor could see their gains erode rapidly.

Tripadvisor also has some financial risks that investors should be wary of. New accounting guidance the company adopted in 2021 could reduce both its diluted earnings per share and reported working capital. Both of these factors could harm Tripadvisor stock in coming quarters.

Finally, overvaluation is a risk factor for Tripadvisor. If we assume that the company really is overvalued at its current price, double-digit gains seem relatively unlikely.

Even if the overvaluation argument is overblown at the current price, Tripadvisor would almost certainly be overvalued if it reached the median analyst target price of $33.50. In other words, there are very few scenarios in which the company’s stock won’t be overvalued by the end of 2022. 

Is Tripadvisor Stock a Buy?

Taking all of this into account, it seems that Tripadvisor is a mixed bag. On the plus side, the stock is likely a good bet on general reopening and the return of travel. Analyst forecasts also suggest good revenue, earnings and share price growth are ahead in 2022. Tripadvisor also has relatively limited liabilities and a low debt-to-equity ratio, both of which favor its ability to invest and expand going forward.

On the downside, though, the stock is very likely overvalued at its current price and could suffer if COVID-19 restrictions return later in the year. While less severe, the company’s financial reporting in 2022 could present challenges for higher share prices. The fact that Tripadvisor’s fortunes in the coming year are largely tied to a resurgence of traveling also exposes it to substantial uncertainties, depending on how consumers respond to the spreading Omicron variant.

It’s also worth taking into account the opportunity costs associated with investing in Tripadvisor. With so many other stocks on the market that could be undervalued or provide higher growth, it’s hard to construct a strong argument for TRIP shares. Even if the company isn’t fundamentally overvalued, there are likely better opportunities out there for investors.

Overall, Tripadvisor probably isn’t the best choice for growth-minded investors. Although the stock offers an 18.7 percent upside if it reaches its median target price, there seem to be too many variables at play to assume such positive performance. When the probable overvaluation is taken into account, Tripadvisor starts to look like a questionable deal. Investors seeking growth stocks for 2022 and beyond are likely better off looking elsewhere.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.