Expedia (NASDAQ:EXPE) reported earnings on Thursday after the market closed and the stock dipped 3% in after hours. But by end of day on Friday, EXPE stock had recovered to only down 0.8%. Granted, the Friday equity session was bullish in general but the EXPE bulls still earned a pat on the back.
This morning, the world markets are panicking over President Donald Trump’s tweets over adding the extra leg to the Chinese tariffs, so EXPE stock is revisiting the lows from last week’s headlines. But still, therein lies an opportunity to trade it for the next few months. This morning’s dip in Expedia is not specific to it. Ctrip (NASDAQ:CTRP) for example is down 4% this morning.
I bet that the U.S. and China will eventually come to terms, and soon. So I still have a bullish market-wide thesis to play out into the summer. If so then EXPE has the opportunity to spike to an all time high. No, this won’t be in one candle but rather a breakout that can happen because to the base that this earnings report established.
The earnings candle may have already set the bottom floor for bulls, so they will be emboldened to only worry about taking the next breakout line. For Expedia stock, that is around $135 per share. If they can close above it, this could invite momentum buyers. The technical pattern then would be bullish and target the $155 area.
There will be resistance along the way at $128, $132 and $135 per share. So the path won’t be easy. EXPE will need the help of a rising equity market. This week is important because of the Uber Initial Public Offering and the potential of a China deal headline. Both of these are catalysts but can cut in both directions as we see this morning.
So those who want to bet on the upside potential should also set tight stops below. If the bears can breach Friday’s low, they can target $119 per share zone. That is support and should hold. But if the whole market continues its correction then that too will fail and EXPE could hit $114. These are not forecasts but rather scenarios that are possible.
Fundamentally, the earnings report wasn’t a disaster. On the face of it EXPE beat earnings but they missed the sales targets. For a growth company this is concerning, but there were a ton of geopolitical and currency factors in place. So one report isn’t definitive yet.
The company sells at a 43 trailing price-to-earnings ratio which is nearly double that of Booking.com (NASDAQ:BKNG) — but you get what you pay for. EXPE is up 15% in a year while BKNG is down -17% for the same period.
The whole industry is in transition. These were the companies that laid the base for the online transaction, and since then they have competition. Unlike Uber and LYFT where there are only two main players, Expedia now has to contend with hundreds of other competitors who are the suppliers of the travel industry themselves. The hotels and airlines themselves will want to cut the deal aggregators like Expedia out where ever they can. And technology’s ubiquity is making this more possible now than ever. This is a trend that won’t likely stop. So EXPE stock has to adapt.
Meanwhile, it is too early to call their doom so It is okay to trade their stocks. But this is one that I would not want to trade a trade into an investment. So setting the stop loss guidelines are important for the overall success of it. Also it is best to wait for the breach of short term resistance before taking the positions. $128.60 is an important EXPE stock milestone from Friday.
The experts are optimistic about Expedia stock, as they most rate it a buy and it’s only trading at the very low end of their range. So if they are correct, then there is much more upside in the stock. All it needs is that breakout we are watching for here.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
