Find a strong rivalry and you’ve got a recipe for drama. In the stock market, that drama turns into profit whenever you can pair two stocks and let them pull your portfolio through the competitive cycle. I’m talking about Expedia Inc (NASDAQ:EXPE) and Priceline Group Inc (NASDAQ:PCLN).
At the moment, it looks like EXPE stock offers a little more growth potential than PCLN, which is why I think now is a good time to overweight the smaller EXPE stock and lighten up on the giant.
It’s true that EXPE stock is an underdog in the world of online travel. The overall business is only 80% the size of Priceline’s and the company’s efforts to get the upper hand in overseas markets have lagged in the past few years, due in part to the strength of the dollar and the turbulent economies of China and Europe.
That said, a few important factors differentiate the two equities, both on and off the price charts.
EXPE Stock Is Underloved
Sentiment on EXPE stock has been cautious at best. Wall Street consensus on 2017 earnings has reeled back 20% over the past two years and the anticipated ramp for the future has also come down significantly. There just isn’t a lot of buzz compared to PCLN, which still commands a price near 40 times current earnings (compared to EXPE’s modest 19 times multiple).
But I’m sensing an opportunity here as the winds shift and the underdog catches up to the leader. While the overseas markets aren’t huge, they’re growing at a much faster rate than what the mature U.S. environment can provide. When the global tide turns and currency rates favor these flights again, EXPE is looking at the kind of fast expansion that booking companies haven’t seen since the initial dot-com boom changed U.S. travel forever.
Even now, EXPE looks like a better buy at these levels. Any stock priced that far above the industry and broader market has already run up a long way and is probably closer to being overextended. Plus, PCLN’s anticipated growth simply doesn’t support that sky-high multiple.
Maybe PCLN can grow its bottom line another 10% to 15% per year for the foreseeable future, but EXPE is easily looking at earnings growth double to triple that range.