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Long only, value, growth, dividend investing
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Summary

  • The company has great earnings growth expectations.
  • Competitor Airbnb fetches a $10 billion valuation at the moment while HomeAway is only $3.38 billion.
  • The stock is in oversold territory.

HomeAway, Inc. (NASDAQ:AWAY) is an online marketplace for the vacation rental industry. On February 19, 2014, the company reported fourth quarter earnings of $0.08 per share, which missed the consensus analysts' estimates by $0.06. In the past year the company's stock price is up 17.37% while the S&P 500 (NYSEARCA:SPY) has gained 18.98% in the same time frame. This is my second foray in the stock, and the last time I was in it I made 8.04% or 62.65% on an annualized basis. I've already purchased a batch of the stock today for my growth portfolio and am down 3.48% on the batch due to a bad market tape on the day. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 194.3, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 44.01 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (7.7), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 25.25%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 25.25%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 25.25%.

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of but is sporting return on assets, equity and investment values of 2.1%, 2.8% and 2.7%, respectively, which are all respectable values. In this particular instance, I will forego the dividend aspect of the financials because the stock is in my growth portfolio, and in the growth portfolio a stock does not have to have a dividend.

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in oversold territory as of today with a current value of 30. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars increasing in height, indicating bullish momentum is starting. As for the stock price itself ($38.86), I'm looking at the 50-day simple moving average (currently $42.66) to act as resistance and the 200-day simple moving average (currently $35.28) to act as support for a risk/reward ratio which plays out to be -9.21% to 9.78%.

Recent News

  1. On 24Mar14 the company offered up $350 million in convertible notes. The notes won't be due till 2019.
  2. The company acquired the top property management app developer in early March. By acquiring Glad To Have You, HomeAway will allow property owners/managers to interact with guests. Glad offers two service tiers which start out at $100 per year.

Conclusion

HomeAway is very similar in business practice to Airbnb, which recently raised funding to the tune of a $10 billion valuation. By comparison, HomeAway's market cap is $3.38 billion. The main difference between the two business models is that Airbnb's primary inventory is primary homes or rooms whereas HomeAway has offerings of second homes as vacation rentals. Fundamentally, the stock is expensively priced on next year's earnings, expensively priced on earnings growth, and has great near and long-term earnings growth potential. Financially, the efficiency ratios are low. Technically, it appears the stock is oversold. Due to the oversold technicals, high competitor valuation, and high earnings growth expectations I'm going to be pulling the trigger on this name at this price right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: I'm Buying HomeAway And Putting It Away