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Summary

  • Head scratching, isn't it? The market tape was exceptionally horrible the day after the company reported, that could be the only reason it dropped so much.
  • The company is expensive on fundamental valuations, but keep in mind it's a growth stock.
  • The stock is experiencing bearish technicals due to the horrible technology tape right now.

The last time I wrote about HomeAway, Inc. (NASDAQ:AWAY) I stated, "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." After writing the article the stock dropped 14.26% versus the 0.59% gain the S&P 500 (NYSEARCA:SPY) posted. HomeAway is an online marketplace for the vacation rental industry.

On April 24, 2014, the company reported first quarter earnings of $0.05 per share, which beat the consensus of analysts' estimates by $0.02. In the past year the company's stock is up 8.32% and is losing to the S&P 500, which has gained 17.76% in the same time frame. 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 and figure out why it has dropped so much since the last time I wrote about it.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 166.6, 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 37.73 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (6.6), 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%. Below is a comparison table of the fundamental metrics for the company when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

27Mar14

38.86

194.3

44.01

0.88

13

7.7

25.25

27Apr14

33.32

166.6

37.73

0.88

13

6.6

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. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

27Mar14

N/A

N/A

2.1

2.8

2.7

27Apr14

N/A

N/A

2.1

2.8

2.7

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock coming back to near oversold territory with a current value of 35.76 and trending downwards. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($33.32), I'm looking at $34.24 to act as resistance and $30.82 to act as support for a risk/reward ratio which plays out to be -7.5% to 2.76%.

Recent News

  1. After the market closed on 24Apr14 the company reported first quarter earnings which beat analyst estimates. Earnings per share were $0.05 on revenue of $105.7 million versus estimates of $0.03 per share on revenue of $102.56 million.
  2. So why did the stock plunge 9.8% after earnings you ask? Well, first of all, the Nasdaq was down 1.75% that day. Ah, that's all I got! Because on the guidance portion of the call, the company guided second quarter revenue between $109 and $111 million (above estimates of $108.2 million) and full 2014 revenue guidance of $435 to $442.5 million (above estimates of $433.7 million).
  3. The company was upgraded to "Outperform" by FBR ahead of the Q1 report.

Conclusion

So the company guided higher and it got punished? This company is a victim of the "sell the high grower names right now and put your money into value stocks" trading thesis going on right now. Fundamentally the company is indeed expensively priced based on future earnings estimates and based on next year's earnings growth potential, but it is a growth stock so it warrants these gaudy numbers. Financially, there's not dividend to speak of and the financial efficiency ratios are modest at best. On a technical basis I believe the stock may have a bit more downside potential for the short-term. Due to no dividend, expensive fundamental valuations, and the downward trajectory of the technicals I will not be pulling the trigger here right now. But I do believe the time to purchase some more shares is approaching because the company did report pretty good earnings and did guide higher.

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: HomeAway Beat Earnings And Guided Higher But Still Lost 9.8% Of Its Value