Stephen Leeb’s “Next Priceline” — new “Top-Secret Recommendation” Travel Stock

Sleuthifying Leeb's pick for the Brain Trust Profits service, he thinks it's going from $40 to $200.

By Travis Johnson, Stock Gumshoe, December 10, 2013

Stephen Leeb is teasing a new pick that is, you guessed it, “top secret” for his subscribers only …

But we prefer, of course, to figure out these “hot” new ideas for free — there’s no reason not to subscribe to a newsletter here and there if you like them or learn something from them, but finding out a “secret” stock is not a good enough reason.

After all, if you pay with the understanding that you’re really just shelling out for a hot stock pick what are the odds that you’ll think about that stock critically? The Gumshoe way means you save a few bucks, you think for yourself, and then — if you like the stock and the reasoning — maybe you’ll feel like you want to go back and subscribe to that newsletter. Or maybe not. Your call.

So what’s the one that Stephen Leeb is pitching now? We haven’t heard a lot from him this year, but things at Leeb HQ must be heating up a bit because the teasers have started rolling in again in recent months — this latest one is all about some kind of internet travel company that he’s comparing to Priceline.com (a stock that still gives me hives, since I pooh-pooh’ed it as “too expensive” several hundred percent ago).

How does he pitch it? He says this is the mobile play on travel, with some big recent news including a deal with Expedia (EXPD) and other possible catalysts from a potential short squeeze and/or acquisition chatter — he says Yahoo (YUHOO) might be looking to buy the company. Here’s some of the tease:

“My favorite internet travel company is positioned to book tremendous profits from this disruptive digital shift to mobile. So, what follows demands your immediate attention…

“This investment opportunity has the potential to change your financial future. And the financial future of your children. And your grandchildren. It’s that BIG!

“My top-secret recommendation dominates a hugely popular niche in the global travel industry. It operates the largest online marketplace for vacation rentals in the world.

“The company operates near 50 websites, and at the end of the third quarter, hosted a total of approximately 773,000 listings of rental properties in 171 countries.

“While travelers get a vast choice of available vacation stays to choose from, often at better rates and with better amenities, property owners earn extra income by renting out their idle properties.

“My top-secret recommendation charges the property owners and property managers a subscription fee ($349 to $999 per year) for the right to list their properties on the company’s websites and reach out to a vast Internet audience….

“I Firmly Believe My Top-Secret Recommendation Will Start Gapping Up The Charts And Hit $200 Per Share!”

So who is it? This is internet vacation rental marketplace HomeAway (AWAY — free trend analysis here), which went public back in 2011, shot up to about $40 for a huge gain on the IPO day, and then was weak for about a year, dipping to the $20s for a while before starting to recover in 2013 … and now, after several months of being a momentum darling and making it into the IBD 50 list of fast growers, they’re back to about $40.

And, of course, as befits an IBD 50 stock that’s growing fast, they’re looking kinda expensive. Not as expensive as AWAY will look if they reach $200 a share anytime soon, but pretty “premium priced” with a trailing PE of 140 and an estimated PE on 2014 forecasts of about 50 or 60. They’ve been beating analyst estimates every quarter, and analysts are continuing to raise their estimates, but that’s still expensive.

Not that “expensive” always means “bad,” of course — investors in almost any kind of market are willing to pay high prices for high growth as long as they’re convinced that growth will continue.

HomeAway is a company that basically operates as a real estate agent for renting second homes — they do marketing and communication between renter and homeowner, and now, apparently, they’re also tying in with some of the big travel websites. That Expedia deal was announced back in October, and will probably begin gradually with inserting HomeAway listings into Expedia accommodations searches starting sometime early in 2014 — which seems like it certainly ought to boost traffic for AWAY, though I imagine Expedia will probably be pretty cautious given their very important relationships with the big hotel chains. AWAY operates a couple dozen different sites and brands, led by HomeAway.com and VRBO.com and including several other sites like BedAndBreakfast.com, and, like other real estate firms, they’re paid by the sellers — homeowners either sign up for a subscription (starting at $349 per year) to list a property, or they pay a 10% per-booking commission, and almost all owners choose the subscription so most of AWAY’s cash flow comes from those subscriptions (which have a high renewal rate of between 75-80%). They also offer added services, like managing payments.

The site and service is free for travelers/renters, other than the actual payment for renting the beach house or whatever it is, and the actual listing/matchmaking service is not that unique but the idea is that they’ve created a strong “network effect” — they have more properties listed, which attracts more renters to search for properties, which attracts more owners to list their properties, etc. That all makes perfect sense — as with other strong “network effect” companies like eBay, size scares off competition even if there’s not necessarily anything unique or un-copy-able about the business. They’re also looking to grow by starting to target the property manager business, getting more professional real estate folks to use HomeAway for their vacation rental listings.

And yes, because they’re on the edge of this “sharing revolution” they do get compared to AirBNB sometimes, comparisons that will probably surface again if AirBNB decides to go public as is often rumored. While AirBNB does also offer vacation property listings, they do so kind of halfheartedly — it’s far more focused on maximizing use of urban apartments and spare bedrooms and oddball spaces, not so much about families looking for a ski house or Canadian retirees desperately seeking a month of warmth in February.

I’ve used the service but have never looked at this particular stock before — in scanning the numbers it looks like they have pretty consistent growth but the growth has been expensive and is not accelerating (revenue climbed by roughly $50 million in 2011, another $50-55 million in 2012, and probably a similar amount in 2013 — that means percentage growth year-over-year is slowing, growth is often tougher for larger companies), which makes me worry about paying this much for the stock. And they have very nice margins, but it doesn’t look like the margins are improving along with their revenue growth. That’s not necessarily a red flag but, without a lot of knowledge about their growth prospects or their strategy, it does stick out as maybe a nice orange flag. Or perhaps a light pink. It should be a highly scalable business with rising margins, but they have a surprisingly large number of employees and I’m not sure whether their lack of margin improvement is because they’re investing in growth or because they have to spend more to compete, given the rising costs of online marketing — presumably the deal with Expedia will also hurt margins even as it’s likely to improve revenues, we’ll see.

That’s about all I can tell you about AWAY — sound like your kind of pick as we watch the snowbirds head off to warmer climes? Let us know with a comment below.

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