The folks at Cabot publish several newsletters, but the one they most typically use for teasing “hot” new picks is the Cabot Stock of the Month letter, which is one of the fairly common “intro level” letters that choose a top idea from among all the publisher’s other letters to share each month.
And since it’s Cabot, whose letters are almost always focused on growth and momentum stocks, it’s probably a barn-burner they’re teasing. So who is it?
Following are the clues to their September Stock of the Month, which they’ll give you “free” if you also subscribe to Cabot’s Stock of the Month for $49. (We likewise will give it to you free in a moment, as soon as we figure it out, and you don’t have to join our paid membership for $49 … but, of course, we’d love it if you did)
“Here at Cabot Stock of the Month, we’ve just targeted another big doubler that’s beginning to look a lot like Amazon, which landed us a 1,290% gain.
“This company is riding the wave of profit growth in a specialized social niche. And its growth, reach and investment potential makes Facebook look like small potatoes.
1. It offers a whole lot more than the social commentary that Facebook offers—specific ways to save money traveling the world—with the majority of the advice provided FREE by its users.
2. It is precisely this specialization that’s made it the largest website in its sector.
“So it’s no wonder analysts are forecasting enormous earnings growth for this sector leader, with many unique visitors and contributors. Just like Amazon, whose price appreciated rapidly on earnings, we see the same growth and revenue model at work here. That’s why I’m forecasting another 50% rise in the next six months and another double soon after that.”
OK, so that’s probably enough to have a 90% certain answer from the Thinkolator … but just to be sure, we clicked through to the long, full ad to check on a few of the other clues. Clues like these:
“It represents the best stock in the market across all sectors…
“It has already handed investors a 170% gain over the past 24 months thanks to 26% earnings growth and 25% sales growth….
“It’s technically ready to break out and notch another 15% to 20% gain in the next 30 days no matter what happens in the overall market….
“… the largest website in its sector, with more than 260 million unique visitors annually and 100 million contributions by its members.”
OK, fine, so we’ve got the answer in the bag now — the Thinkolator tells us that Timothy Lutts and the Cabotonians are teasing TripAdvisor (TRIP)
Which is indeed a leading social media company, built up as a reviews site for travel and expanding into huge discussion groups of travelers, lots of travel-related content, and a very focused and apparently quite viable advertising system — which makes sense, the best people to reach when you’re trying to sell travel services are, well, people who are planning trips.
And yes, it’s expensive. This is now a $10 billion company that went public in the $20s about a year and a half ago and is now pushing $80, with a trailing PE of 50, forward PE of 33, recent earnings growth of 26%, as teased estimated revenue growth in the 20-25% range into the future (25% last quarter), and huge profit margins.
It’s easy to be skeptical about expensive internet companies, even those with active and growing businesses — and it’s tough to stomach stocks that trade at 50X earnings — but I was also skeptical about Priceline.com, oh, hundreds of percent and a few years ago, so it’s worth noting that the easy knee-jerk skepticism about growth stocks doesn’t stop them from going up. I haven’t studied up on TripAdvisor or the sustainability of their ad model, but they are apparently doing well on mobile, which is absolutely key for any advertising-dependent stock, and there was a short article in Investors Business Daily, which is the NY Times of growth investors, just a few days ago buttressing that view and focusing on the potential of their rejiggered ad system.
This is a growth company that you can pretty easily make a case for, despite its rapid rise and high valuation (it’s much cheaper than Facebook, by the way, on which I do have some LEAP options — FB is growing revenue faster, but TRIP is much more profitable on each dollar of revenue). They are pretty big at $10 billion, but the US travel market is massive — various sources put the size of the US leisure travel market at $300-500 billion a year, and TRIP’s revenue is still under a billion dollars a year, so growth shouldn’t necessarily be capped.
There’s been a lot of consolidations in this space, and Priceline is the clear leader in price searching, particularly after they bought Kayak, but TRIP does have a nice niche in more content-heavy and qualitative data that can also connect you to hotels and airlines and generate ad revenue. I haven’t bought shares, but if they’re growing at 20% a year consistently into the future, as analysts expect, then paying 30X next year’s earnings is certainly not ludicrous — the business has grown fast, it is scalable, and it is a big market. That doesn’t mean it’s going to be a great investment, of course, I don’t know it very well — but I wouldn’t make fun of you for buying it. I do like that they are so content-heavy, which gives them something more to count on than just supplying hotel or airline information, particularly when hotels and airlines are trying so hard to drive buyers away from sites like Expedia and Priceline and toward their own websites in order to save money and try to increase their hold on loyal customers.
TripAdvisor is still, I think, under voting control of John Malone’s Liberty Interactive (LINTA), which owns something like 20% of the stock but a majority of voting control through special shares that they bought from Barry Diller last year. And there’s a fairly substantial short position, but that’s mostly because institutional ownership is very high and there isn’t a lot of free float.
So that’s what I know about TripAdvisor — I’ve enjoyed using their website on occasion when planning vacations, but haven’t done so lately, it’s an interesting growth story and apparently there’s some kind of potential growth catalyst if their new ad system is successful in increasing rates for the long term. It’s your money, though, so what do you think? Expecting a quick 20% move and a several-hundred-percent gain over the coming years, or is it too pricey for you to handle? Let us know with a comment below.