Seems like the perfect time really. After closing out 3 trades last week and 1 more this morning, we are now ready to take on a few new positions. One of the great opportunities we had been discussing in our premium newsletter was the mispricing between Priceline and Travelzoo. A trade that already looked promising turned even more so last when when Priceline’s stock tumbled after announcing results that were up to expectations, but lowered forecasts, which came as a surprise to analysts.
Is Priceline suffering more these days? Absolutely, it does business in a sector that is hurting right now, travel. With a shaky economy, travelers have been pulling back on their spending and looking for better deals. Thankfully, Priceline is specialized in such opportunities and is well positioned to increase its market share. As if things were not difficult enough, Priceline is now dealing with mass travel problems to Europe because of the volcano ash chaos. All of these have certainly hurt Priceline’s outlook, no doubt about it. What better way to trade to go long on Priceline than doing so against another online travel company?
But Priceline is not the only one…
I find this trade similar to the one that was done on Monster WorldWide (MWW) and Dice Holdings (DHX). It seems as though sometimes the industry leaders’ stock prices adjust more quickly to news and in this case, the smaller player is Travelzoo (TZOO). Travelzoo is a smaller online travel company that has been fighting to gain some market share in the very competitive online travel sector. The company is promising and there is no doubt that it will continue to grow. But right now, growth is not as important as you might think…
Which one is the growth stock here?
Symbol Name Industry Dividend Yield (TTM)
IGT International Game Tech Gambling 8.8
PSO Pearson Publishing 7.94
LVS Las Vegas Sands Resorts & Casinos 6.71
GEF Greif Packaging & Containers 6.33
FUN Cedar Fair Leisure 6.05
MAT Mattel Leisure 5.92
GME GameStop Specialty Retail 5.62
TIME Time Publishing 5.5
TUP Tupperware Brands Packaging & Containers 5.42
SPLS Staples Specialty Retail 5.32
GES Guess? Apparel Stores 5.16
WYNN Wynn Resorts Resorts & Casinos 5.14
RGC Regal Entertainment Media - Diversified 5.04
F Ford Motor Auto Manufacturers 5.01
SEAS SeaWorld Entertainment Leisure 4.8
GM General Motors Auto Manufacturers 4.67
MDP Meredith Publishing 4.63
MDC M D C Holdings Residential Construction 4.61
IP International Paper Packaging & Containers 4.5
SIX Six Flags Entertainment Leisure 4.44
DIN DineEquity Restaurants 4.31
COH Coach Luxury Goods 4.3
GPS Gap Apparel Stores 3.96
VIAB Viacom Media - Diversified 3.84
AMC AMC Entertainment Hldgs Media - Diversified 3.82
TRI Thomson Reuters Publishing 3.81
PKG Packaging of America Packaging & Containers 3.76
KSS Kohl's Department Stores 3.74
M Macy's Department Stores 3.68
VIA Viacom Media - Diversified 3.61
SON Sonoco Products Packaging & Containers 3.59
DRI Darden Restaurants Restaurants 3.57
AEO American Eagle Outfitters Apparel Stores 3.49
DSW DSW Apparel Stores 3.48
CBRL Cracker Barrel Old Restaurants 3.48
BKE Buckle Apparel Stores 3.46
WRK WestRock Packaging & Containers 3.4
BBY Best Buy Co Specialty Retail 3.39
CNK Cinemark Holdings Media - Diversified 3.29
JWN Nordstrom Department Stores 3.26
LEG Leggett & Platt Home Furnishings & Fixtures 3.26
TM Toyota Motor Auto Manufacturers 3.23
CATO Cato Apparel Stores 3.22
KAR KAR Auction Services Specialty Retail 3.2
GPC Genuine Parts Specialty Retail 3.14
ANF Abercrombie & Fitch Apparel Stores 3.13
JCI Johnson Controls Auto Parts 3.08
HOG Harley-Davidson Recreational Vehicles 3.07
CHS Chico's FAS Apparel Stores 3.06
MCD McDonald's Restaurants 2.99
HSNI HSN Specialty Retail 2.95
OMC Omnicom Group Advertising Agencies 2.87
JW.B John Wiley & Sons Publishing 2.87
WWE World Wrestling Enter Media - Diversified 2.86
JW.A John Wiley & Sons Publishing 2.85
TGNA Tegna Broadcasting - TV 2.83
PAG Penske Automotive Group Auto & Truck Dealerships 2.8
RENX RELX Publishing 2.8
DNKN Dunkin Brands Group Restaurants 2.8
MINI Mobile Mini Packaging & Containers 2.74
WSM Williams-Sonoma Specialty Retail 2.74
PII Polaris Industries Recreational Vehicles 2.68
TVPT Travelport Worldwide Leisure 2.66
MGA Magna International Auto Parts 2.62
LUX Luxottica Group Apparel Stores 2.61
YUM Yum Brands Restaurants 2.59
ALSN Allison Transmission Auto Parts 2.57
WYN Wyndham Worldwide Lodging 2.57
BMS Bemis Co Packaging & Containers 2.54
EAT Brinker International Restaurants 2.53
HAS Hasbro Leisure 2.51
HRB H&R Block Personal Services 2.51
HOT Starwood Hotels & Resorts Lodging 2.51
Ju
st take a look at the table above. Even though Priceline is so much bigger and a much more important player in the industry, it is growing faster than Travelzoo in terms of revenues, traffic (see chart at the bottom of this post), and even its brand continues to gain more value faster than Travelzoo. If that is the case, there is no reason in my opinion to have Travelzoo trading at a higher P/E ratio but that is exactly the case right now. Obviously, this trade would not fit all technical traders because clearly the pattern for Priceline is going downward right now. But a quality company like Priceline will fight its way back and as you can imagine, I don’t think Priceline is the only online travel company that is reducing its revenues and growth forecasts right now, far from it.