Earnings

Critical Comparison: Expedia, Inc. (EXPE) vs. Hilton Worldwide Holdings Inc. (HLT)

Expedia, Inc. (NASDAQ:EXPE) shares are down more than -15.04% this year and recently decreased -1.03% or -$1.06 to settle at $101.76. Hilton Worldwide Holdings Inc. (NYSE:HLT), on the other hand, is up 4.19% year to date as of 02/13/2018. It currently trades at $83.21 and has returned 3.12% during the past week.

Expedia, Inc. (NASDAQ:EXPE) and Hilton Worldwide Holdings Inc. (NYSE:HLT) are the two most active stocks in the Lodging industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect EXPE to grow earnings at a 13.33% annual rate over the next 5 years. Comparatively, HLT is expected to grow at a 14.80% annual rate. All else equal, HLT’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 15.72% for Hilton Worldwide Holdings Inc. (HLT). EXPE’s ROI is 6.40% while HLT has a ROI of 7.50%. The interpretation is that HLT’s business generates a higher return on investment than EXPE’s.

Cash Flow 




The amount of free cash flow available to investors is ultimately what determines the value of a stock. EXPE’s free cash flow (“FCF”) per share for the trailing twelve months was -2.26. Comparatively, HLT’s free cash flow per share was +0.62. On a percent-of-sales basis, EXPE’s free cash flow was -3.42% while HLT converted 1.7% of its revenues into cash flow. This means that, for a given level of sales, HLT is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. EXPE has a current ratio of 0.70 compared to 0.90 for HLT. This means that HLT can more easily cover its most immediate liabilities over the next twelve months. EXPE’s debt-to-equity ratio is 0.94 versus a D/E of 4.57 for HLT. HLT is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

EXPE trades at a forward P/E of 17.20, a P/B of 3.43, and a P/S of 1.87, compared to a forward P/E of 32.47, a P/B of 18.53, and a P/S of 2.66 for HLT. EXPE is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. EXPE is currently priced at a -32.95% to its one-year price target of 151.76. Comparatively, HLT is -3.03% relative to its price target of 85.81. This suggests that EXPE is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for EXPE and 2.00 for HLT, which implies that analysts are equally bullish on their outlook for the two stocks.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. EXPE has a beta of 0.84 and HLT’s beta is 1.26. EXPE’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. EXPE has a short ratio of 4.57 compared to a short interest of 2.31 for HLT. This implies that the market is currently less bearish on the outlook for HLT.

Summary

Hilton Worldwide Holdings Inc. (NYSE:HLT) beats Expedia, Inc. (NASDAQ:EXPE) on a total of 7 of the 14 factors compared between the two stocks. HLT has lower financial risk, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, EXPE is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, HLT has better sentiment signals based on short interest.

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