Booking Holdings Inc (BKNG, Financial) experienced a daily gain of 7.86%, with an Earnings Per Share (EPS) (EPS) of 115.79. This raises the question: Is the stock modestly undervalued? In this article, we'll delve into a thorough valuation analysis of Booking Holdings. We encourage you to read on for a comprehensive understanding of the company's intrinsic value.
Introduction to Booking Holdings Inc
As the world's largest online travel agency by revenue, Booking Holdings (BKNG, Financial) offers a wide range of services, including booking and payment for hotel and alternative accommodation rooms, airline tickets, rental cars, restaurant reservations, cruises, experiences, and other vacation packages. The company operates various branded travel booking sites such as Booking.com, Agoda, OpenTable, and Rentalcars.com. It has also expanded into travel media with the acquisitions of Kayak and Momondo.
Booking Holdings' revenue primarily comes from transaction fees for online bookings. The company currently has a market cap of $109.3 billion, sales of $19.3 billion, and an operating margin of 28.31%. Its stock price stands at $3063.16, which when compared to the GF Value of $3802.12, suggests that the stock could be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally trade at.
According to the GF Value, Booking Holdings appears to be modestly undervalued. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns.
Given that Booking Holdings is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Booking Holdings
Investing in companies with low financial strength could result in permanent capital loss. Hence, it's crucial to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Booking Holdings has a cash-to-debt ratio of 1.15, which ranks better than 63% of companies in the Travel & Leisure industry. Based on this, GuruFocus ranks Booking Holdings's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Booking Holdings
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Booking Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $19.3 billion and Earnings Per Share (EPS) of $115.79. Its operating margin is 28.31%, which ranks better than 91.3% of companies in the Travel & Leisure industry. Overall, the profitability of Booking Holdings is ranked 8 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Booking Holdings is 7.2%, which ranks better than 71.9% of companies in the Travel & Leisure industry. However, the 3-year average EBITDA growth rate is -8%, which ranks worse than 67.16% of companies in the Travel & Leisure industry, indicating subpar growth.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the return on invested capital should be higher than the weighted cost of capital. For the past 12 months, Booking Holdings's return on invested capital is 30.34, and its cost of capital is 12.23.
Conclusion
In summary, the stock of Booking Holdings appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 67.16% of companies in the Travel & Leisure industry. To learn more about Booking Holdings stock, you can check out its 30-Year Financials here.
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