Despite economic constraints, the technology sector is poised to grow amid digital transformation across industries and government initiatives. So, investors might consider buying fundamentally strong internet stocks, Expedia Group (EXPE), CarGurus (CARG), and Despegar.com (DESP). Read on.
While the macroeconomic challenges might mar near-term growth, the tech industry's long-term prospects look bright amid government initiatives, increasing digitization, and our growing reliance on technology in daily life. So, investors could look to buy fundamentally strong internet stocks, Expedia Group, Inc. (EXPE), CarGurus, Inc. (CARG), and Despegar.com, Corp. (DESP).
The U.S. Department of the Treasury has approved federal funds for multi-purpose community facility projects and broadband infrastructure projects in Delaware and Idaho under the American Rescue Plan's Capital Projects Fund (CPF).
The CPF program focuses on expanding economic opportunities and providing internet connectivity in communities with unmet needs, as well as providing affordable, high-speed internet to American households. The funding is part of President Biden's Investing in America Agenda.
Moreover, the Internet of Things (IoT) market is expected to grow at a CAGR of 10.5% until 2027. IoT is the key to augmenting digital transformation and unlocking operational efficiencies. Increasing IoT adoption across end-user industries, such as manufacturing, automotive, and healthcare, is driving the market's growth.
In addition, the global wireless internet services market is expected to grow at a CAGR of 7% until 2027.
Let's delve deeper into the fundamentals of the stocks mentioned above.
Expedia Group, Inc. (EXPE)
EXPE operates as an online travel company in the United States and internationally. The company operates through Retail; B2B; and trivago segments. In addition, it offers a range of travel and non-travel verticals, including corporate travel management, airlines, travel agents, online retailers, and financial institutions.
In terms of trailing-12-month Price/Cash Flow multiple, EXPE is trading at 4.78 is 43.9% lower than the industry average of 8.53. In addition, EXPE's trailing-12-month EV/EBITDA of 5.52x is 39.7% lower than the industry average of 9.16x.
EXPE's trailing-12-month gross profit margin of 85.93% is 144.4% higher than the industry average of 35.16%. Its trailing-12-month levered FCF margin of 21.35% is 640.8% higher than the industry average of 2.88%.
For the first quarter that ended March 31, 2023, EXPE's revenue increased 18.5% year-over-year to $2.67 billion. Its adjusted EBITDA increased 6.9% from the year-ago value to $185 million.
The company's total current assets and cash and cash equivalent amounted to $12.13 billion and $5.90 billion for the period that ended March 31, 2023, compared to $11.15 billion and $5.55 billion for the period ended March 31, 2022, respectively.
The consensus revenue estimate of $12.93 billion for the year ending December 2023 represents a 10.8% increase year-over-year. Its EPS is expected to grow at 38.4% year-over-year to $9.40 for the same period. EXPE's shares have gained marginally over the past month to close the last trading session at $92.71.
EXPE's POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EXPE has an A grade for Value and Quality and a B for Growth and Momentum. Within the Internet industry, it is ranked #5 out of 56 stocks. Click here for the additional POWR Ratings for Stability, and Sentiment for EXPE.
CarGurus, Inc. (CARG)
CARG operates an online automotive marketplace connecting buyers and sellers of new and used cars in the United States and internationally. It operates through two segments, U.S. Marketplace and Digital Wholesale.
CARG's trailing-12-month EV/Sales multiple of 1.36 is 26.1% lower than the industry average of 1.84.
Its trailing-12-month ROCE of 46.87x is significantly higher than the 3.24x industry average. Its trailing-12-month ROTA of 25.87% is significantly higher than the 1.38% industry average.
During the fiscal first quarter that ended March 31, 2023, CARG's marketplace revenue increased 2.4% year-over-year to $167.13 million. The company's net income and EPS came in at $16.13 million and $10, compared to a net loss and loss per share of $62.09 million and $0.53 in the previous year's quarter, respectively.
Analysts expect CARG's revenue to increase 17.1% year-over-year to $1.10 billion in 2024. Its EPS is expected to grow 12.3% to $1.02 in 2024. It surpassed EPS estimates in three of four trailing quarters. The stock has gained 37.7% over the past six months to close its last trading session at $19.23.
It's no surprise that CARG has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Value. It is ranked #6 in the same industry.
Beyond what is stated above, we've also rated CARG for Growth, Stability, Sentiment, and Momentum. Get all CARG ratings here.
Despegar.com, Corp. (DESP)
DESP is an Argentina-based online travel company that provides a broad suite of travel products, including airline tickets, travel packages, hotel bookings, and other travel products, through its websites and mobile applications. The company operates in two segments, Air; and Packages, Hotels, and Other Travel Products.
DESP's trailing-12-month EV/Sales multiple of 0.58 is 47.8% lower than the industry average of 1.11. Its trailing-12-month Price/Sales multiple of 0.55 is 33.2% lower than the industry average of 0.82.
DESP's trailing-12-month gross profit margin of 66x is 87.7% higher than the 35.16x industry average. Its trailing-12-month levered FCF margin of 12.58% is 336.5% higher than the 2.88% industry average.
DESP's revenue came in at $145.54 million for the fiscal fourth quarter that ended December 31, 2022, up 16.8% year-over-year. Its gross profit increased 42.1% year-over-year to $100.65 million. Its operating income came in at $3.10 million versus an operating loss of $1.65 million in the year-ago period. Also, its adjusted EBITDA came in at $12.52 million, up 39.1% year-over-year.
Street expects DESP's revenue to increase 20.6% year-over-year to $648.91 million in 2023. Its EPS is expected to come in at $0.12 in 2023. DESP's share have lost marginally intraday to close its last trading session at $5.36.
DESP's POWR Ratings reflect its solid prospects. The stock has an overall B rating, translating to Buy in our proprietary rating system.
It also has an A grade for Value and a B grade for Growth and Momentum. It is ranked #8 within the same industry. Click here to see the additional ratings for DESP (Stability, Sentiment and Quality).
What To Do Next?
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EXPE shares were trading at $92.65 per share on Wednesday morning, down $0.06 (-0.06%). Year-to-date, EXPE has gained 5.76%, versus a 8.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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