Investment Thesis

TripAdvisor (TRIP) continues its fall from grace. I fail to see how investors are able to make a bullish thesis here. And that the stock is more likely than not overvalued, despite continuing to trade near multiple-year lows.

Navigating A Challenging Environment, With Poor Business Model

Asides from its valuation (I’ll address this lower down), it is difficult to get excited about TripAdvisor’s potential. It is a company that has been losing relevancy for a considerable amount of time, and COVID is just another headwind to navigate.

Indeed, whenever one reads through an earnings call and sees management’s primary focus is on playing defense and cutting back expenses you already know your investment is in trouble.

Put another way, if management waits until things are very grim to start thinking about becoming efficient with its operations, you see that its probably not the best-managed operation.

Specifically, since 2017, TripAdvisor’s revenues have been largely flat. Thus, its troubles have been in place way before COVID. Furthermore, going into Q3 this year, TripAdvisor is cutting back expenses by 40% compared with the start of the year. Furthermore, it has negotiated a leverage covenant break until Q3 of 2021. None of these point to a company that is becoming more relevant over time – quite the opposite, it appears a company that is struggling for survival.

Absurd Share Repurchase Program

We can see that over its Q1 2020 period, TripAdvisor drew dawn $700 million of debt while at the same time deploying $175 million towards share repurchases. This is astounding.

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Consider this, back in December 2019, even though TripAdvisor had its problems, at least it could claim to have a rock-solid balance sheet, with a net cash position of more than $315 million.

Fast forward 90 days, and it’s left with a balance sheet with under $100 million of net cash. But more importantly, it now has a whopping $700 million of debt. Surely, even without the benefit of hindsight, TripAdvisor should have been more prudent with its capital?

Valuation – Still Overvalued

Perhaps I’m being too pessimistic and all the above and more are already priced into its share price? I do not believe this to be the case. Realistically, I’ve been following this company from the sidelines and been wanting until its valuation affords me enough margin of safety to warrant my investment.

But whilst it supports a $2.5 billion market cap valuation, it is difficult to build a bullish thesis here.

The Bottom Line

The video shows that I find it very difficult to build a bullish thesis here.

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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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