Travel Company’s Breakout Could Score Traders 20% Profits
Traveling and trading are my two favorite activities. Ever since I was a small child I liked being on the move, seeing new things, meeting unique and different people, and the adventure of the unknown. I was fortunate to have parents with a travel-related business who would sometimes take me along or tell me stories about exotic locations and adventures in far-off lands.
While my love for traveling was most likely part of my upbringing, my interest in the financial markets and trading certainly was not. I don’t know anyone more fiscally conservative than my parents. They prefer the safety of capital over taking even the slightest risk in return for profit.
To this day, my parents consider what I do in the markets gambling. They will walk the streets in foreign countries in the middle of the night without fear, but the thought of risking even a single dollar in the market causes trepidation.
I had flashbacks of my mother warning against investing in the market when I came upon today’s trade in online travel company, TripAdvisor (NASDAQ: TRIP). Not only does it capture my core interests, but I am also an avid user of the company’s services.
TripAdvisor provides reviews of hotels, restaurants and travel destinations from regular users — in other words, generally unbiased and truthful opinions from actual travelers. These reviews are invaluable when making decisions on where to stay, eat or visit.
Prior to TripAdvisor, travelers largely had to rely on biased marketing materials, advice from travel agents and suggestions from friends. But TripAdvisor crowd sources the opinions of thousands of savvy travelers to help with decision making.
TripAdvisor has become the largest travel community in the world with over 220 million monthly unique visitors, which represents an astounding 11% of the world’s monthly unique visitors in online travel.
The site contains more than 100 million reviews and opinions on 2.1 million attractions, restaurants and accommodations. The company boasts a market cap of $10.5 billion, revenue of just under $859 million and has total cash of $396 million. The company’s revenue comes from click-based advertising, display advertising and subscriptions.
Results for the second quarter of 2013 were stellar with revenue up 7% from the first quarter to just under $247 million. This growth represents a 25% increase year over year. Cash flow from operations ramped up 45% year over year to $89.6 million, and the company repurchased 675,000 shares for $42.4 million.
As the economy continues to improve, TripAdvisor should continue to thrive. Travel is directly tied to consumers’ disposable income. Therefore, as the job situation slowly gets better, it can only be a positive for the company.
The technical situation is what first attracted me to TripAdvisor, whose stock has been trending up since March 1. Using the 50-day simple moving average (MA) as support, the price has climbed from $47 to almost $75 in just over five months. The most recent quarter’s results sent prices gapping higher from the $62 range to nearly $75 in just two trading sessions. I think the upward momentum will continue here and suggest buying on a break above $75.
Recommended Trade Setup:
— Buy TRIP on a breakout above $75
— Set stop-loss at $67.50
— Set initial price target at $90 for a potential 20% gain