Tuesday, February 27, 2024
Hometalking numbersThese stocks are red hot

These stocks are red hot

The weather may be cold across much of North America, but travel booking stocks are hot.

Expedia and Priceline are up around 11% and 12% respectively so far in 2014. However, TripAdvisor is really taking off – that stock is up 30% since the year began. On top of that, the company now just got a boost from Deutsche Bank, which raised its price target on TripAdvisor from $92 to $122 per share. The stock closed Tuesday at $105.20.

But should investors book TripAdvisor for their portfolios? Chad Mollman, equity analyst at Morningstar, likes the company but thinks that there are better deals to be had in the market.

(Read: Leisure travel rising among road trippers and jetsetters)

"We like the near-term fundamentals for the company," says Mollman on CNBC's Street Signs' Talking Numbers segment. "We think that click-based advertising growth is likely to accelerate from 18% last year to 30% this year. They have a durable competitive advantage through a strong network effect."

So, what's the problem? It's the company's relative valuation, according to Mollman.

"With the run-up… the stock is overvalued right now," says Mollman. "It's trading at 50 times this year's earnings. There are better values in this sector. You can buy Priceline.com for 25 times and we think that's the stock to buy in the sector right now."

Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, also isn't a buyer. He believes the charts show reasons to worry.

"This is a name that you do not want to chase here," says Ross. "Yes, the stock's been a fantastic performer. We're up over 100% over the last year."

(See: CNBC's Travel coverage)

And, after testing the 200-day moving average on February 3, the stock subsequently gained 40%. That steep rise raises concerns for Ross.

"That suggests to me that we are in the exhaustive blow-off top or the final climactic stage of this move," says Ross. "That's sets the stage for a sharp and swift decline. I would not chase [TripAdvisor]."

Ross believes investors should wait for the stock to retest its prior resistance (and now support) at $90 or even 200-day moving average, currently around $78.

"I would not be a buyer at these levels," says Ross.

To see the full discussion on TripAdvisor with Mollman on the fundamentals and Ross on the technicals, watch the video above.

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