2-Star Stocks Poised to Plunge: Travelzoo?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, online travel deal company Travelzoo (NAS: TZOO) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Travelzoo's business and see what CAPS investors are saying about the stock right now.

Travelzoofacts

Headquarters (Founded)New York (1998)
Market Cap$427.8 million
IndustryInternet software and services
Trailing-12-Month Revenue$130.7 million
Management

CEO Christopher Loughlin (since July 2010)

CFO Glen Ceremony (since May 2011)

Return on Equity (Average, Past 3 Years)24.4%
Cash/Debt$40.3 million / $0
Competitors

Expedia (NAS: EXPE)

Google (NAS: GOOG)

priceline.com (NAS: PCLN)

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 28% of the 667 members who have rated Travelzoo believe the stock will underperform the S&P 500 going forward. These bears include jetamerica and Jeffrey2012.

This past summer, Jeffrey2012 nicely summed up the Travelzoo bear case:

This stock has no dominant market niche and few barriers to entry. ... In the last three years margins have continued to erode. ... A better bet is [Expedia] or [priceline] as well as numerous travel industry stocks. Insiders have been dumping large numbers of shares.

In fact, Travelzoo still sports a lofty price-to-cash flow multiple of 37.9. That represents a clear premium to listed rivals Expedia (7.2), Google (12.7), and priceline (24.3).

CAPS member Jeffrey2012 elaborates on the bear case:

Travelzoo's claim to fame is their entrance into the social coupon frenzy that seems to have gripped investors. Unfortunately for a lot of them, it's not as profitable as it seems. ...

The company's management is very suspect to me right now since they are just chasing a fad and are willing to risk a lot of margin for it. Not to mention it is overpriced and has no real credible advantage in the exploding market for social marketing. ... I'm not sure if I want to be in a fad company that will surely be taken down by the many competitors i.e. livingsocial, google, and the million of other sites that are catering to this niche.

What do you think about Travelzoo, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Interested in another easy way to trackTravelzoo?Add it to your watchlist.

At the time this article was published Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Travelzoo, Google, and priceline. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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