Now may finally be the time for investors to book a position in Booking Holdings (BKNG -1.15%). After years of range-bound trading, the former Priceline.com has risen more than 55% this year and the stock achieved a record high earlier this fall.
After a pandemic that nearly brought the travel industry to a standstill, Booking has benefited from pent-up demand for travel. Even with a nominal stock price of over $3,100 per share, this supercharged travel stock looks positioned to continue achieving new highs. Here's why.
Who is Booking Holdings?
Admittedly, the company may have a name recognition problem. As Priceline.com, the company was one of the darlings of the dot-com era until the stock lost nearly all of its value in a sell-off.
However, the stock recovered over time, and the company acquired other travel sites such as Booking.com, Agoda.com, Kayak.com, and OpenTable. Although it adopted the Priceline Group name in 2014, the company felt it needed to improve brand awareness, so in 2018, it became Booking Holdings.
Dropping the Priceline name may have had the opposite effect. As late as the fall of 2022, Booking Holdings traded at a lower price than the day the company changed its name in February 2018. It was only with the latest move that the stock achieved record highs.
The Booking Holdings share price
Another perception-related challenge may pertain to its massive share price. Admittedly, many small investors cannot afford a full share with the price exceeding $3,100 per share. The company's continuing avoidance of a stock split may baffle some investors.
This curiosity is understandable as Booking approved a 1-for-6 reverse stock split during the dot-com bust to boost a then-lagging share price. Since that time, it has made no effort to reverse the reverse split. However, most brokerages will sell fractional shares of this company, making it available to investors with small budgets.
Moreover, investors may benefit from the smaller share count. The number of outstanding shares has steadily fallen since 2014, when the share count peaked at over 52 million. In just the past year, share buybacks have taken the count from just under 39 million shares to less than 35 million. That lower supply has likely contributed to the increased stock price.
Booking Holdings' business recovery
A lower supply of shares is not the only reason to consider Booking Holdings. In the third quarter of 2023 alone, customers booked over 276 million nights on the site, a 15% yearly increase. Also, about 33% of those room nights were for alternative accommodations, indicating it has not conceded this market to Airbnb. Booking has also further developed its flight offerings. Consequently, Its sites booked 57% more flights over the last year.
Given such improvements, Booking grew revenue for the first nine months of the year to nearly $17 billion, a 28% increase from the same period last year. Between slower growth in operating expenses and its interest and dividend income, net income for the first three quarters of the year came in at almost $4.1 billion. In comparison, net income was $1.8 billion in the year-ago period.
That higher net income has also taken the P/E ratio to 22, a level near multiyear lows. With its low earnings multiple, business recovery, and share price growth, investors may finally see this stock in a different light.
Consider Booking Holdings stock
Given its business and share price recovery, Booking Holdings may have already begun a long-awaited bull market. Indeed, moving away from the Priceline name may not have helped the company. Also, its share price strongly indicates it needs to initiate a stock split.
Nonetheless, its underlying businesses have shown meaningful signs of recovery. Also, the stock sells at a low P/E ratio even after significant share price growth. Given such conditions, the stock looks poised to fly higher for the foreseeable future.
