Buy, Sell, Or Hold Tripadvisor Stock?

Forbes

8 hours ago

CHINA - 2025/03/07: In this photo illustration, A woman browses Tripadvisor website on her laptop. ... More (Photo Illustration by Serene Lee/SOPA Images/LightRocket via Getty Images)
Tripadvisor stock (NASDAQ: TRIP) surged 8% on July 2 — significantly surpassing the S&P 500's modest 0.47% increase — after activist investor Starboard Value revealed a stake exceeding 9% in the online travel company. The approximately $160 million investment caused shares to climb another 7% in after-hours trading on Wednesday.
The timing of Starboard's action is significant. Tripadvisor has faced challenges lately, with shares declining roughly 15% over the past year, and the company has been considering strategic options since early 2024. This process commenced shortly after Tripadvisor entered into a $435 million agreement to acquire its majority stakeholder, Liberty TripAdvisor, last December. In January, the firm also revealed that it received a non-binding proposal from a strategic bidder.
Despite the activist enthusiasm, Tripadvisor's fundamentals paint a more serious picture. Nevertheless, those looking for growth with less volatility than individual stocks may want to look into the High Quality portfolio, which has outperformed the S&P 500 with returns exceeding 91% since its inception. Separately, refer to Seagate Stock to $85?
Valuation: Not a Bargain
At first sight, Tripadvisor may seem attractively priced, exhibiting a price-to-sales (P/S) ratio of 1.0 compared to the S&P 500's 3.1. However, a more detailed examination uncovers a significantly less appealing valuation. The company trades at a price-to-free cash flow (P/FCF) ratio of 61.3, nearly three times the S&P 500's 20.9, and a price-to-earnings (P/E) ratio of 41.1, well above the benchmark's 26.9. These high multiples imply that investors are paying a substantial premium for a company exhibiting lackluster financial results. Additionally, see our analysis on Tripadvisor's valuation.
Revenue Stalled and Margins Are Weak
Tripadvisor's top-line growth has slowed, with revenue rising only 1.4% in the past 12 months and just 0.8% year-over-year in the most recent quarter. This deceleration raises questions about the company's capability to sustain future growth. Concurrently, Tripadvisor is facing difficulties in converting sales to profits. Its operating margin stands at a modest 6.5% for the last four quarters, while its free cash flow margin is merely 5.8%, well below the S&P 500's 14.9%. The company's net margin is even more concerning at 2.9%, compared to 11.6% for the overall market. These disappointing profitability indicators highlight Tripadvisor's struggles in providing shareholder value.
Financial Health: Mixed Picture
Tripadvisor's balance sheet showcases a mixed scenario. The company has $1.3 billion in debt, leading to a debt-to-equity ratio of 68.9%—considerably higher than the S&P 500 average of 19.4%. However, this leverage is somewhat balanced by a strong cash position, with $1.2 billion in cash and equivalents representing a substantial 42% of total assets. While the elevated debt level raises some concerns, Tripadvisor's solid liquidity offers a meaningful safety net.
Resilience in Downturns: Troubling History
Historically, Tripadvisor stock has underperformed during market downturns. In the 2022 inflation-driven selloff, TRIP fell 60.5%, more than double the S&P 500's 25.4% decline. Similarly, during the COVID-19 pandemic, the stock declined 53.9%, again trailing the broader market. Notably, Tripadvisor has yet to recover its pre-pandemic heights and currently trades around $15—less than a quarter of its 2021 peak—highlighting its limited resilience in volatile conditions. Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks performed during and after the past six market crashes.
The Bottom Line
Tripadvisor falls short in the areas that matter most. While its growth has been reasonable, that momentum is clearly diminishing. Profitability remains extremely weak, and although the company's financial situation is relatively stable, it is far from indestructible. Its performance in economic downturns has been exceedingly poor, and the current valuation appears disconnected from its fundamental aspects. Even with renewed interest from activist investor Starboard Value, Tripadvisor presents a weak case for long-term investors. Its high valuation, alongside sluggish growth, narrow margins, and a history of underperformance in turbulent markets, renders it an undesirable investment.
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