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Summary

  • The stock is expensive on 2015 earnings estimates and earnings growth expectations.
  • The financial efficiency ratios have deteriorated.
  • Wall Street doesn't seem to believe the company's guidance and has slashed earnings estimates for 2015.

The last time I wrote about HomeAway, Inc. (NASDAQ:AWAY) I stated, "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." After writing the article the stock dropped 10.23% but then proceeded to pop 9.39% for an overall drop of 1.8% versus the 2.6% 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 7.77% and is losing to the S&P 500, which has gained 15.9% 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.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 181.78, 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 41.63 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (6.21), 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 29.28%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 29.28%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 22.4%. Below is a comparison table of the fundamental metrics for the company for 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

7.70

25.25

27Apr14

33.32

166.6

37.73

0.88

13

6.60

25.25

27May14

32.72

181.78

41.63

0.79

12

6.21

29.28

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 1.6%, 2.3% 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

27May14

N/A

N/A

1.6

2.3

2.7

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle ground territory with upward trajectory since 08May14 and a value of 48.79. 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 increasing in height, indicating bullish momentum. As for the stock price itself ($32.72), I'm looking at $34.48 to act as resistance and the 20-day simple moving average (currently $31.89) to act as support for a risk/reward ratio which plays out to be -2.54% to 5.38%.

Recent News

  1. On the first of the month, TripAdvisor (TRIP) bought Vacation Home Rentals. The site lists over 14,000 rental properties worldwide and is a direct attack to HomeAway's business by offering over 550,000 rental properties versus the latter's 625,000 offerings. I definitely wouldn't be surprised to see further consolidation in the space which actually involves HomeAway.

Conclusion

A month after earnings were announced we find ourselves with a company whose earnings estimates for next year have been slashed whose financial efficiency ratios have deteriorated. Fundamentally, the company is expensively priced based on next year's earnings estimate and on future growth potential while still expected to grow earnings at a high clip for the near and long-term perspective. Financially, there is no dividend to speak of and the efficiency ratios have decreased. On a technical basis, there appears to be a bull run taking place in the stock, but I believe it's a bit more than halfway over. Due to the slashing of the earnings estimates for 2015, deteriorating financial efficiency ratios, and the really expensive earnings growth potential, I'm not going to be pulling the trigger 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!

Disclosure: I am long AWAY, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Is It Time To Run Away From HomeAway?