MakeMyTrip Limited (MMYT) and Trivago N.V. (TRVG) are two leading online travel companies that provide hotel, lodging and accommodation search and booking facilities. MMYT sells travel products and solutions in India, the U.S., Singapore, Malaysia, through three segments — Air Ticketing, Hotels and Packages, and Bus Ticketing. TRVG provides online meta-search for hotels and accommodation through online travel agencies, hotel chains, and independent hotels.
The travel industry is expected to witness an increase in volume as travel activities resume gradually with the anticipated easing of lockdown restrictions this year. Also, as vaccines take effect, leading travel stocks like MMYT and TRVG are poised to service a torrent of pent-up vacation demand as people emerge from months of being cooped up at home.
While MMYT has returned 22.6% over the past year, TRVG has declined 15.9%. In terms of past six-month performance, MMYT is the clear winner with 74.9% gains versus TRVG’s 17% returns. Here is why we think MMYT is a better pick now:
Recent Financial Results
In the fiscal second quarter ended September 30, 2020, MMYT’s revenue surged 229.7% sequentially to $21.1 million, due primarily to some domestic travel and government approved international travel operations that commenced in late May. The company’s adjusted margin under the air ticketing segment was 8.0% compared to 7.2% in the quarter ended September 30, 2019, due to incremental incentives from suppliers. MMYT’s other-segment’s income increased 100% from the prior-year quarter to $0.40 million.
TRVG’s revenue for the third quarter ended September 30, 2020 declined 76% year-over-year to €60.60 million. The company’s consolidated return on advertising sales was 190.3%, compared to 122.8% in the same period in 2019. The increase was mainly driven by significant reductions in brand marketing activities and higher ROAS targets in TRVG’s performance marketing channels in reaction to the COVID-19 pandemic
Past and Expected Financial Performance
Analysts expect MMYT’s revenue to increase 181.7% next year. The company’s EPS is expected to grow 17.1% next year. Moreover, its EPS is expected to grow at a rate of 48.6% per annum over the next five years.
Analysts expect TRVG’s revenue to increase 60.6% in the current year. The company’s EPS is expected to grow 98.8% in the current year. Moreover, TRVG’s EPS is expected to grow at a rate of 33.4% per annum over the next five years.
TRVG’s trailing-12-month revenue is 1.56 times MMYT’s. Also, TRVG is more profitable with a gross profit margin of 97.1% versus MMYT’s 29.3%.
Moreover, TRVG’s leveraged free cash flow margin of 7.6% compares favorably with MMYT’s 5.5%.
In terms of trailing-12-month Price/Sales, MMYT is currently trading at 10.67x, which is much more expensive than TRVG, which is currently trading at 1.84x. Moreover, MMYT’s trailing-12-month Price to Book of 3.59x is 252% higher than TRVG’s 1.02x.
Though MMYT looks much more expensive compared to TRVG, we think this premium valuation is justified considering MMYT’s superior financials.
MMYT is rated “Strong Buy” in our proprietary POWR Ratings system, while TRVG is rated “Neutral”. Here are how the four components of overall POWR Rating are graded for MMYT and TRVG:
MMYT has an “A” for Trade Grade, Peer Grade, Buy & Hold Grade, and Industry Rank. In the 67-stock Internet industry, it is ranked #14.
TRVG has a “C” for Trade Grade and Buy & Hold Grade, a “D” for Peer Grade, and an “A” for Industry Rank. It is ranked #32 of 67 stocks in the same industry.
Both MMYT and TRVG are expected to do well in the long run because of the industry’s anticipated revival and strategic changes in their offerings. However, MMYT appears to be a better buy despite trading at a higher valuation based on its better financials.
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MMYT shares were trading at $29.00 per share on Wednesday afternoon, up $0.13 (+0.45%). Year-to-date, MMYT has declined -1.79%, versus a 0.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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