Value investing, as popularized by Benjamin Graham and refined by Warren Buffett and Charlie Munger, centers on a simple but strong idea: find companies whose stock price trades below their intrinsic worth. This isn’t about chasing hot momentum or betting on speculative turnarounds. Instead, it’s a disciplined search for businesses with solid fundamentals—profitability, reasonable growth, and financial health—that are currently out of favor or overlooked by the broader market. The current environment, with the S&P 500’s long-term and short-term trends both positive, can make such bargains harder to spot, but they still exist. One candidate emerging from a recent ‘Decent Value’ screen is Expedia Group Inc (NASDAQ:EXPE). This screen specifically targets stocks that combine a strong valuation rating (above 7/10) with decent scores in profitability, health, and growth, making them potential candidates for value-oriented investors.
Expedia Group is a global online travel giant, operating a portfolio of well-known brands like Expedia.com, Hotels.com, Vrbo, and Orbitz, serving both leisure and corporate travelers. Despite its market leadership, the stock currently carries an overall fundamental rating of 7 out of 10, and its valuation stands out as particularly attractive. Below, we break down why this stock meets the criteria of a potential value play.
Valuation Metrics
A cornerstone of value investing is ensuring you are not overpaying for a company’s earnings or assets. The ‘Decent Value’ screen prioritizes stocks with a strong valuation rating, and Expedia scores a solid 7 out of 10 in this area. Here’s a closer look at the numbers:
- Price/Earnings (P/E) Ratio: EXPE trades at a P/E of 15.67. This is significantly cheaper than 79.37% of its peers in the Hotels, Restaurants & Leisure industry. For context, the average S&P 500 P/E sits at 26.54, meaning EXPE is priced at a notable discount to the broader market.
- Forward P/E Ratio: Looking ahead, the forward P/E of 12.80 is even more attractive, with 80.16% of industry competitors trading at higher multiples.
- Enterprise Value to EBITDA: This ratio also suggests a bargain, as EXPE is cheaper than 63.49% of its industry peers.
- Price/Free Cash Flow: EXPE stands out here, with a ratio that is cheaper than 90.48% of companies in the same sector.
For a value investor, a low valuation is the starting point. It provides a “margin of safety”—a buffer against unforeseen setbacks or overly optimistic projections. When a stock trades at a discount to its intrinsic value and peers, the potential for price appreciation as the market corrects its perception is higher.
Profitability
A low valuation alone is not enough; a value trap can occur if the business itself is deteriorating. Expedia, however, demonstrates excellent profitability, earning a rating of 9 out of 10. This is a critical check for value investors, as it confirms the business is generating real returns on its capital.
- Return on Equity (ROE): At 100.78%, this metric is among the best in its industry, outperforming 96.83% of peers.
- Return on Invested Capital (ROIC): A very healthy 22.36% beats 92.86% of the industry. More importantly, the current ROIC is above its 3-year average of 16.54%, signaling improving efficiency.
- Margins: Gross margin stands at an impressive 90.12%, operating margin at 14.68%, and profit margin at 8.78%. All three have improved in recent years, indicating strong pricing power and operational discipline.
High profitability reassures value investors that the company’s intrinsic value is not just a theoretical calculation. It means the business can generate cash, reward shareholders, and weather economic downturns better than less profitable rivals.
Growth
Value investing doesn’t ignore growth; it demands that growth is secured at a reasonable price. Expedia’s growth rating of 6 out of 10 is decent and, importantly, expected to continue at a rate that justifies its low valuation.
- Past Earnings Growth: Earnings Per Share (EPS) has grown by 30.64% in the last year and by an average of 32.98% annually over the past several years—strong, consistent performance.
- Revenue Growth: Revenue grew 7.61% in the past year, with an impressive 23.16% average annual growth over the longer term.
- Future Expectations: Analysts expect EPS to continue growing by 15.38% per year on average, with revenue growth of about 6.84% annually.
The low PEG ratio (which adjusts the P/E for growth) confirms that EXPE’s growth is not fully priced in. For a value investor, this means the market may be underestimating the company’s future potential, creating an opportunity.
Financial Health
The final pillar of the ‘Decent Value’ screen is financial health, where EXPE scores a 5 out of 10. While not perfect, the report reveals important nuances that a value investor should consider.
- Solvency: The debt-to-FCF ratio is an excellent 1.98, meaning it would take less than two years of free cash flow to pay off all debt—a strong sign. The debt-to-equity ratio of 3.48 is on the high side, but the report notes that EXPE has “very limited outstanding debt,” reducing the risk.
- Liquidity: The current and quick ratios are below 1.0 (0.73), which could signal short-term payment challenges. However, for a large, cash-flow-positive company like Expedia, these ratios are often less concerning than for smaller firms.
- Altman-Z Score: At 1.57, this score falls into a “grey zone,” but it’s in line with the industry average.
While the health rating is mixed, the key positives—strong cash flow, manageable debt levels, and a track record of reducing shares outstanding—suggest the company is financially sound enough to support its long-term value proposition.
A Potential Value Play Worth Exploring
Expedia Group combines a low valuation with strong profitability and reasonable growth, making it a textbook candidate for value investors. The market’s current pricing appears to overlook the company’s improving margins, robust cash generation, and leadership in the online travel space. As always, a margin of safety is your best defense, and EXPE offers a strong one.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always conduct your own research or consult with a qualified financial professional before making any investment decisions.
If you are interested in discovering more stocks that fit a similar ‘Decent Value’ profile, you can explore the full screening criteria and results via this Decent Value Stocks Screen.