A good earnings report will go a long way toward improving a company's standing with investors. Take Travelzoo (Nasdaq: TZOO), for instance. After announcing earnings last Thursday the stock soared 28 percent.
Some sanity has returned following the one-day run however, and Travelzoo shares are again trading in the mid $80s. But considering the 12-month analyst consensus price target is $97.80, the pullback puts shares in a reasonable trading range right now.
And it's a good place for potential investors to look at buying shares. Oftentimes, a stock's price will run before the company issues earnings - then run further if investors like the results. When the stock gets ahead of itself, like Travelzoo's recently did, it will sell off. But the potential has been marked on the chart, and good companies that follow through with continued performance often see their stocks trade back to the recent highs.
Founded in 1998 by Chairman Ralph Bartel, Travelzoo calls itself "a global Internet media company." It supplies information on travel and entertainment deals that are researched and selected by its staff through email newsletters and websites. The company also has licensed the Travelzoo name for use in Asian markets, including China. Revenue is generated through advertising fees.
Travelzoo, which has a market cap of $1.3 billion, is a little more like Groupon than high-roller Priceline - a stock that is trading north of $500 a share right now. And unlike its competitors, it's not caught up in a battle royal with American Airlines parent AMR Corp. (NYSE: AMR) like Orbitz is, and like Expedia was.
More than 2,000 companies currently use Travelzoo services, including American and United airlines, Avis Rent A Car and Royal Caribbean cruise lines.
Travelzoo had a unique launch back in the dot-com boom years. The current Chairman, Ralph Bartel, set up Travelzoo.com Corporation in the Bahamas, and then issued 5.2 million shares to some 700,000 "Netsurfer stockholders" for no cash consideration.
Travelzoo Inc. was subsequently established in 2001, and 11.3 million of the Netsurfer shares were exchanged for those of the new entity (there are currently 16.5 million shares outstanding, with the founder controlling 10 million.)
What excited investors in the first-quarter report was a 30 percent increase in revenue to $37 million. Before a one-time charge, adjusted net income was $6 million, or $0.37 per share - more than double the $0.15 EPS in the year-ago period.
In the first quarter, Travelzoo reported that its Local Deals business doubled in the current 48 worldwide markets, resulting in $16.2 million in revenue. The company says its deals business has the potential to generate $780 million annually (issuing just two deals a week) if it reaches the 30-million-subscriber level in 200 global markets.
That's a lofty goal, but continued progress toward it would almost certainly move the stock above its recent highs.
During the first quarter, Travelzoo announced that it has achieved two notable subscriber plateaus - 22 million worldwide, and 5 million in Europe. More than a third of its subscribers are now outside the U.S., and business grew 23 percent in North America and 53 percent in Europe.
Based on expected 2012 earnings per share of $1.70, Travelzoo does trade with a high forward P/E of around 50. But if you're in the market for a stock that's now trading 15 percent below its recent high, and has the potential to make higher highs, Travelzoo might be one worth considering.