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Why Travelzoo (TZOO) Is a BUY for May?

Despite a turbulent macroeconomic environment, Travelzoo (TZOO) reported solid numbers in the first quarter. Given the strong revival of the travel and hospitality demand, it could be wise to buy the stock now. Let's discuss...

Despite the headwinds of high inflation and interest rate hikes, global internet company Travelzoo (TZOO) reported a solid start to the year. With travel demand still strong and inflation showing signs of easing, it could be wise to buy the stock now.

In this piece, I have discussed several reasons why it could be wise to buy the stock now.

Despite the macroeconomic challenges, the company’s EPS and revenue beat the analyst estimates comprehensively. Its EPS came 108.9% above analyst estimates, while its revenue beat the consensus estimate by 6%.

TZOO’s CEO, Holger Bartel, said, “We will continue our strategy of leveraging Travelzoo’s global reach, trusted brand, and strong relationships with top travel suppliers to negotiate more exclusive offers for Travelzoo members. With more than 30 million members, 8 million mobile app users, and 4 million social media followers, Travelzoo is loved by travel enthusiasts who are affluent, active, and open to new experiences.”

The company’s North America business segment’s revenue rose 26% year-over-year to $14.80 million in the first quarter, while its Europe business segment’s operating profit jumped 156.7% year-over-year to $457 thousand. The Jack’s flight club business segment’s revenue increased 15% year-over-year to $948 thousand. Also, premium subscribers rose 27% over the prior-year quarter.

For the second quarter, TZOO expects growth in revenue and operating profit to continue year-over-year. During the pandemic, the company was able to lower its fixed costs, and it believes that it can keep its fixed costs relatively low in the foreseeable future.

Moreover, cooling inflation could help the company maintain its strong operating margins. Inflation in April eased to its lowest annual pace since 2021, coming in slightly less than estimated at 4.9%. Barrington Research upgraded its rating for TZOO from Market Perform to Outperform. They have also given a one-year price target of $13.77.

TZOO’s stock has gained 78.1% in price over the past three months and 102.9% year-to-date to close its last trading session at $9.13. Wall Street analysts expect the stock to hit $11.50 in the near term, indicating a potential upside of 30.2%.

Here’s what could influence TZOO’s performance in the upcoming months:

Robust Financials

For the fiscal first quarter that ended March 31, 2023, TZOO’s revenues increased 17.1% year-over-year to $21.60 million. The company’s non-GAAP operating income increased 105.4% from the year-ago period to $5.54 million. Its net income attributable to TZOO increased 55.7% year-over-year to $3.67 million. In addition, its EPS came in at $0.23, representing a 21.1% increase from the prior-year quarter.
Strong Historical Growth

TZOO’s EBITDA grew at a CAGR of 4.1% over the past three years. Its EBIT grew at a CAGR of 2.4% over the past three years. In addition, its total assets grew at a CAGR of 2.9% in the same time frame.

Discounted Valuation

In terms of forward non-GAAP P/E, TZOO’s 10.38x is 26.6% lower than the 14.14x industry average. Its 1.62x forward EV/Sales is 10.3% lower than the 1.80x industry average. Likewise, its 8.85x forward EV/EBIT is 41.4% lower than the 15.11x industry average.

High Profitability

In terms of the trailing-12-month gross profit margin, TZOO’s 86.63% is 74.1% higher than the 49.77% industry average. Its 10.78% trailing-12-month net income margin is 283.4% higher than the 2.81% industry average. Likewise, its 34.05% trailing-12-month Return on Total Capital is 786.2% higher than the industry average of 3.84%.

Positive Analyst Estimates

The consensus EPS estimate of $0.87 for the fiscal year 2023 represents a 55.7% improvement year-over-year. The consensus revenue estimate of $84.32 million for the same year indicates a 19.4% increase from the prior year. Its EPS for fiscal 2024 is expected to increase 6.3% year-over-year to $0.93, while its revenue is expected to increase 11.1% year-over-year to $93.69 million.

TZOO’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 154.2% and 19.8% year-over-year to $0.21 and $21.19 million, respectively.

POWR Ratings Show Promise

TZOO has an overall A rating, equating to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TZOO has an A grade for Sentiment, in sync with its favorable analyst estimates.

It has an A grade for Quality, consistent with its high profitability. Its solid historical growth justifies its B grade for Growth.

Within the Internet industry, TZOO is ranked first out of 57 stocks. Click here to access TZOO’s Value and Stability ratings.

Bottom Line

TZOO’s stock is trading above its 50-day and 200-day moving averages of $6.38 and $5.53, respectively, indicating an uptrend. Despite the macroeconomic headwinds, TZOO reported solid performance in the first quarter. It is expected to maintain its momentum going forward, thanks to the strong travel and hospitality trends and easing inflation.

Given its robust financials, strong historical growth, discounted valuations, favorable analyst estimates, and high profitability, it could be wise to buy the stock now.

How Does Travelzoo (TZOO) Stack Up Against Its Peers?

TZOO has an overall POWR Rating of A, which equates to a Strong Buy rating. Check out these other stocks within the Internet industry with A (Strong Buy) or B (Buy) ratings: trivago N.V. (TRVG), Opera Limited (OPRA), and Yelp Inc. (YELP).

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TZOO shares were trading at $8.66 per share on Friday afternoon, down $0.37 (-4.10%). Year-to-date, TZOO has gained 94.61%, versus a 9.91% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.


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