Despegar Remains Expensive After The Recent Selloff

Jun. 18, 2018 9:29 AM ETDespegar.com, Corp. (DESP)14 Comments
Edgar Torres H profile picture
Edgar Torres H
2.33K Followers

Summary

  • I perform a qualitative analysis of the business prospects of DESP.
  • Brand recognition and partnership with prominent Latin American firms should provide DESP with an edge in the online travel market.
  • I estimate the appropriate PE multiple to be approximately 26.5.
  • Based on the calculated PE multiple, I find the company overvalued by about 10%.
  • Since the calculated fair value and current price don't differ very much, I can conclude that DESP is currently in the fairly to slightly overvalued range.

In this article, I'll attempt to perform a valuation on Despegar.com (NYSE:DESP). And as you'll see, the company appears to be trading at a higher-than-justified PE multiple.

Qualitative factors

The company is an online travel agency. It profits from the selling of airline tickets and hotel bookings. DESP operates across all of Latin America and has excellent brand recognition with customers.

In fact, it's well ahead of its competitors with regards to brand recognition. As of December 2017, Despegar.com outranked all its competitors. In other words, DESP has better brand recognition than Booking (BKNG), Trivago (TRVG), CVC, Airbnb (AIRB), and TripAdvisor (TRIP). According to DESP, these figures are based on Google's Share of Voice Report based on Google Trends data (search keywords).

Source: Explained in the paragraph above

Regarding its ownership structure, a majority of shares are controlled by the investment firm Tiger Global (46%). After that, Expedia (EXPE) is another significant shareholder in Despegar.com. Expedia holds roughly 15% of the stock. Since Expedia is another travel technology company, the backing of this company is particularly interesting. At this time, there are no concrete "synergies" presented between Despegar.com and Expedia, but in the future, it's likely that they'll cooperate to boost each other's results. Moreover, the backing of a trustworthy investment firm with a long track record of success like Tiger Global adds certainty to the DESP's business model and prospects.

Source: Despegar.com fact sheet.

The publicly traded shares of Despegar.com account for approximately 20% of the company's floating shares. Unfortunately, this might be a negative factor in the company's valuation. I say this because any investor will only have a minority stake in the total equity through the publicly traded shares, and this might discourage activist investors and institutional firms that would otherwise hold management accountable. Nevertheless, Tiger Global and Expedia will probably be reliable and

This article was written by

Edgar Torres H profile picture
2.33K Followers
Follow me for analyses of undercovered/overlooked stocks. My takes are based on numbers but without completely ignoring the underlying story. I'm not uncomfortable holding unpopular opinions, nor do I seek them. I just want to get as close to the truth as possible.I've been an Investor for over nine years. I write to structure my thoughts. I worked on my country's stock exchange as an analyst for private debt prospectus. I worked as a sell-side analyst and also as a broker. I love the markets and everything related, and now I’m able to be a full-time investor. I'm very grateful for this. I hope my comments/articles are of use to someone else. - "Veritas Super Omnia."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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