Priceline.com Inc (PCLN), Expedia Inc (EXPE): Where Is the Best Travel Investment Opportunity?

The Most to Gain and Least to Lose

I can’t justify an investment in Travelzoo. The company has an industry-best 46% return on equity and very strong operating margins of 17.5%. This may appear as a strength, but with such efficiency, the company has near peaked its profit and is not reinvesting enough of its income back into the business. This was evident by the company’s near 30% loss in net income year-over-year.

With limited growth, Travelzoo’s upside is tied into its profit, and margins have peaked. Therefore, I would not revisit Travelzoo unless its operational approach became more like its competitors.

My problem with Travelzoo is the same issue I have with Priceline. Priceline’s 42% return on equity and its 35% operating margin leave very little room for operational error, as investors expect continued margin strength.

Priceline has over $5 billion in cash but is yet to buy any of its own stock. Expedia purchased two million shares in the last quarter alone. This is just one reason that I like Expedia.

Expedia Inc (NASDAQ:EXPE) has the lowest valuation relative to next year’s earnings, with a forward P/E ratio of just 16. The company also has a lot of room to improve, having a 12% return on equity and operating margins of 12%. Expedia operates the same business as Priceline but is significantly cheaper. Since Expedia has equal growth, I think it has the most to gain and the least to lose.

The article Where Is the Best Travel Investment Opportunity? originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Priceline.com. The Motley Fool owns shares of Priceline.com. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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