May 19, 2022

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TZOO Inventory: A Pristine Stability Sheet Produces a Risk-free Buying Opportunity

4 min read

Travelzoo (NASDAQ:TZOO) is an online enterprise that posts deals from organizations in the vacation, entertainment and restaurant industries. It differs from other travel web-sites by completely covering deals and specials instead of direct reservations. With the company’s strong financials and numerous men and women resuming vacation, TZOO stock is a worthwhile acquire at its present value around $14.

TravelZoo (TZOO stock) website zoomed in on the logo

Resource: II.studio / Shutterstock.com

The organization operates in 3 segments:

  • Travelzoo North The us, which consists of operations in Canada and the U.S.
  • Travelzoo Europe, which features functions in France, Germany, Spain and the U.K.
  • Jack’s Flight Club, a membership company for quality customers to accessibility and acquire flight specials.

Travelzoo derives its profits from advertising service fees, which include listing charges compensated by vacation, enjoyment and neighborhood firms. Most of the company’s revenue arrives from from North The usa.

Countless numbers of organizations use Travelzoo to market their deals. These include things like travel luminaries this sort of as Hilton Worldwide’s (NYSE:HLT) Hilton Lodges, Carnival’s (NYSE:CCL) Princess Cruises and United Airlines (NASDAQ:UAL).

Travelzoo is an historical public corporation by today’s requirements. They entered the industry in an preliminary public featuring (IPO) in December 2003. Because then, TZOO inventory has been by increase-and-bust inventory cycles in which its value exceeded $90 only to arrive crashing down to truth. In excess of the past 5 a long time, the inventory has traded between $3 and $20 — though that lower selling price was largely pushed by the Covid-19 pandemic.

TZOO Stock’s Financials Are Outstanding

Travelzoo operates an asset-light business design. It has very several capital expenditure demands and challenging property on the stability sheet. Profitability is fairly easy for the corporation as extended as the financial state stays robust and people today carry on to journey (and look for for bargains.)

As a journey-associated organization, Travelzoo had a challenging 2020. Income declined 49% when world-wide travel grinded to a halt for numerous months. The organization noted a exceptional running decline of extra than $11 million last yr.

Travelzoo revenue must rebound this year. However, a slower worldwide journey recovery — specially in Europe — will avoid the organization from returning to 2019 concentrations in 2021. Comprehensive recovery could take place following yr, but it is not likely vacation behaviors will return to regular prior to 2023. Numerous individuals around the entire world are continue to feeling the results of the Covid-19 pandemic and new variants of the virus.

Contrary to American Airways (NASDAQ:AAL), which has a extremely levered harmony sheet, Travelzoo has a pristine equilibrium sheet. Funds on hand as of June 30 was $82.1 million. The organization is envisioned to be worthwhile in 2021 and crank out no cost cash move as perfectly.

Travelzoo’s 2nd Quarter Demonstrates Highway to Restoration

Profits practically tripled calendar year-over-year from $7 million in the second quarter of 2020 to $19.1 million in Q2 2021. The enhance was generally pushed by revenue from North The usa and strong voucher sales. EBITDA enhanced to $4 million and diluted earnings for each share (EPS) was also good at 22 cents.

A entire recovery in profits could choose time U.S effects ended up nonetheless about 20% down below Q2 2019 concentrations. Its recovery likely also might be negatively affected by a slower return to usual conditions in Europe.

On the positive side, Travelzoo enacted quite a few cost-containment actions which are driving a speedier return to normalized margins.

Travelzoo trades at a large cost-to-earnings (P/E) ratio since they might only earn an EPS of 15 to 20 cents this calendar year. On the other hand, entire restoration margins and price-preserving steps will develop EPS properly previously mentioned $1 for every share at some position. From that point of view, TZOO stock is a deal at today’s cost.

Primarily based on continuing EBITDA expansion in the double-digit vary for the following 5 several years, my Discounted Cash Flow design produces values earlier mentioned $30 for Travelzoo shares. TZOO inventory may possibly pull back in an in general marketplace retreat, but there is some assistance the firm will probable get back its personal inventory if it receives as well low cost.

On the date of publication, Tom Kerr did not keep a position in any security pointed out in the write-up. The viewpoints expressed in this short article are people of the writer, issue to the InvestorPlace.com Publishing Suggestions.

Tom Kerr has labored in the financial services sector for about 25 several years. At the moment he is a Senior Portfolio Supervisor at Rocky Peak Cash Management. Prior to that he was Chief Investment decision Officer and Director of Exploration of SGL Expense Advisors, and has served in a range of positions at other finance-associated companies. Mr. Kerr has also been a contributing writer to TheStreet.com, RagingBull.com and InvestorPlace.com. He’s a CFA charterholder and obtained a B.B.A in Finance from Texas Tech University. 

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