Advanced Micro Devices Inc. and TripAdvisor Inc. are the two best performing stocks in the S&P 500 this year, but they aren’t getting much love from technology analysts.
(TRIP) 81% gain in 2018 is second only to (AMD) 95% rise in the index. While Wall Street has been skeptical on AMD for years, the phenomenon is relatively new for TripAdvisor. Just three of the 27 analysts covering TripAdvisor recommend buying shares now, down from more than a third of analysts four years ago when the stock was trading significantly higher, according to data compiled by Bloomberg.
The travel website has traded above the average 12-month Wall Street price target for most of the year. The stock has seen wild price swings around earnings, including a 15% jump after a strong third-quarter report last month.
“I think one thing that has surprised people over the last few quarters is that they have managed to show better performance on the bottom line,” SunTrust Robinson Humphrey analyst Naved Khan, who has a hold rating on TripAdvisor, said in an interview.
TripAdvisor closed at a two-year high on Nov. 8 after projecting “healthy” growth in 2019 earnings before interest, taxes, depreciation, and amortization. Net income is on track to expand by more than 700% this year after three years of contraction, according to analyst estimates compiled by Bloomberg. That’s helped the stock recover ground lost after an effort to get travelers to book hotels directly on its website crimped revenue growth last year.
That’s good news for John Malone, whose Liberty Global has a large stake in TripAdvisor through a holding company. Jackson Square Partners, Vanguard Group, and Eagle Capital Management all own more than 8% stakes, according to third-quarter filings.
Still, the stock’s gains have outstripped growth on the bottom line. The Needham, Mass.-based company is trading at 35 times earnings estimates, a level that both Khan and RBC analyst Mark Mahaney say is high.
The stock’s valuation, lack of growth in the hotel business, and dependence on peers Booking Holdings and Expedia Group for a large chunk of revenue are key issues that are keeping many investors on the sidelines, according to Mahaney. He has the equivalent of a hold rating on the stock.
Booking and Expedia account for almost half of TripAdvisor’s sales, according to Bloomberg supply chain data.
“They’ve done a really good job at cutting costs,” said Khan. “If they manage to continue to drive costs out, or increase margins, that could deliver upside.”
