Travelzoo Inc. (TZOO): Has this Online Travel Company Turned the Page?

In the past, I have been highly critical of both Travelzoo Inc. (NASDAQ:TZOO) the company and also its management. This stemmed from what I believe was a period of misleading investors complemented with strong insider selling back in its glory days of 2011. However, after another strong quarter, I think Travelzoo Inc. (NASDAQ:TZOO) might have turned the page.

Back in January, I wrote an article titled “Management Matters: Be Careful Investing in these Companies,” which included Trazelzoo and its one-day gains of 24% after posting Q4 earnings. My point was that earnings weren’t that good, and that investors should remember the past when director Ralph Bartel sold almost 2.5 million shares for an average price of more than $75.00 while other executives “pumped” the stock. The truth was that Bartel was smart, as Travelzoo Inc. (NASDAQ:TZOO) had no business trading at such inflated prices. But my point was to view optimism surrounding this company with a glass-half-empty mentality.

Travelzoo Then and Now

At $75 per share, Travelzoo was trading with a market cap of $1.1 billion; today its market cap is $375 million. At $1.1 billion, the company was seeing top line growth of roughly 30% and was trading with a price/sales ratio of about 10.0. Furthermore, the stock had a P/E ratio in triple digits. Today, the metrics are much more favorable: The stock trades with a price/sales below 2.50 and has a P/E ratio of 21.50.

After a year of flat trading, Travelzoo Inc. (NASDAQ:TZOO) now appears to be fairly valued, and has rallied 28% in 2013. For its most recent quarter the company saw revenue growth of 7%, net income growth of 49%, strong growth in both North America and Europe, and subscriber growth of 5% year-over-year.

When you think of the fast-growing booming internet company space, including the likes of Yelp and Zillow, Travelzoo appears to be growing slow. In fact, even when compared to its industry with companies such as Expedia Inc (NASDAQ:EXPE) and Priceline.com Inc (NASDAQ:PCLN), it appears to be growing slow. But Travelzoo is different — first off its business model includes the sale of travel packages, not necessarily flights and hotels. Yet with sales of less than $200 million there is a lot of room for growth.

Travelzoo Compared to its Industry

What I like about Travelzoo Inc. (NASDAQ:TZOO) is that the company is growing, although slowly, and is fairly valued. From an investment perspective I consider it to be better than Priceline.com Inc (NASDAQ:PCLN) but worse than Expedia.

1. One of my knocks on Priceline is its size. The online travel industry has very few barriers to entry and Priceline commands the largest piece of the pie. Granted there is a large global market; I think Priceline.com Inc (NASDAQ:PCLN)’s size actually weighs in the favor of Expedia and especially Travelzoo in terms of upside.