TZOO - Sector: Services---Industry: Internet Information Providers

[pinoleropuro]

why do you say its going all the way down to 25/share?

[yukiii]

why do you say its going all the way down to 25/share?

For a long term buy and hold you can buy here, but as a short term trade I would wait for a lower price.
Lower because there is no incentive to jump in and buy here and its a long summer.

[David Randolph]

TZOO is touching support around the $27 area. Yes, it may go down to the $25 - $26 area, but it would certainly be very attractive at those levels. My valuation model says TZOO will return 46.55% a year for the next 3 years, I'll keep holding the stock.

[wxmang]

Interesting article on TZOO:

"Gurus Jump Into Travelzoo"
 
When travel information Web site Travelzoo got clobbered last week on a sour earnings announcement, top investors at Marketocracy.com took the opportunity to shares of the volatile stocks at a significantly reduced price.

Earnings for the quarter were 25 cents per share, as the company said that its costs were rising and that it spent 44 cents per share just to acquire new customers. The 22% miss of analyst estimates sent the stock down 24%, where gurus bought in.

Ups and downs are nothing new to Travelzoo, which was a 10-bagger back in 2004, hitting $100 briefly that year before falling down into the teens in 2005. But despite its high-flying past, the $27.76 stock is priced at a relatively cheap 27.6 times earnings now that its near its 52-week low.

Gurus saw that rising costs shouldn't hurt its profitability for a while yet, since Travelzoo has the cushion of a 45% margin before taxes. Their buy was so big it went from not being a holding to being near to the top 100 holdings overall in M100 portfolios."

http://www.forbes.com/2007/05/02/travelzoo-symmetricom-corning-pf-ii-in_mr_0502gurupicks_inl.html?partner=yahootix

Wxmang

[David Randolph]

Thanks for the article wxmang

TZOO recovered some ground yesterday, reacting positively to a support area. I believe the stock is getting ready to start a recovery phase. Analysts are looking for $1.16 EPS for the full year of 2007, so the forward earnings multiple is 23.9, which doesn't seem high considering the very fat net profit margin of this business. Just a bit of revenue growth and a good chunk of it goes to the bottom line. Probably this is why the stock is so volatile.

I'll keep holding TZOO.

[David Randolph]

TZOO is starting to come back. The fact is that everyone wants this business, they just don't agree on price lol

What I mean is, TZOO is a very well managed and attractive business with a bright future in my view, the only issue is valuation. Currently the company is selling for 24.4 times 2007 estimated EPS, and I don't think it can get much cheaper than this, because of the profitability of the business. If there's some revenue growth, 25-30% will go to the bottom line, this after 40% plus taxes (the only mistake from management is being based in New York, it should be in the Cayman Islands ).

The company's clients, mostly online travel agencies, are seeing their business grow by leaps and bounds, and that is due to the help of services like Travelzoo. In the future the company's European operations will be as big or even bigger than its US counterparts and as profitable in my view. This will make the company double in size over the next couple of years.

I'll keep holding TZOO.

[David Randolph]

One issue that attracts me to TZOO is its fat net profit margin. Yet, this can be a double edge sword, because it attracts competitors to the field. Fool's published an article on Thursday that talks about a competitive threat to TZOO's business, coming from Priceline.com (PCLN):

Waterloo for Travelzoo

Anyway, TZOO's business isn't getting subscribers to its free newsletter (since it is free), it is selling advertising services to more than 600 companies:

«More than 600 companies purchase our advertising services, including American Airlines, ATA, Avis Rent A Car, British Airways, Caesars Entertainment, Expedia, Fairmont Hotels & Resorts, Interstate Hotels & Resorts, JetBlue Airways, Kimpton Hotels, Liberty Travel, Marriott Hotels, Royal Caribbean, Spirit Airlines, Starwood Hotels & Resorts Worldwide, United Airlines, and Vanguard Rent-A-Car.»

Of course, they need a growing base of subscribers to their free mailing list, so the value of its advertising services go up, but the same people can subscribe to TZOO's and PCLN newsletters, in fact, probably many do that.

I'm going to keep myself concentrated on TZOO's growth in Europe and Asia and I'll keep holding the stock.

[Houlahan]

You can find this article at;
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070506:MTFH33528_2007-05-06_18-32-34_L0637474&type=comktNews&rpc=44

Europe, Asia balancing US econ slowdown
By Sven Egenter and Natsuko Waki

BASEL, Switzerland, May 6 (Reuters) - Central bankers from key emerging economies said on Sunday robust growth in Europe and Asia is compensating a slowdown in the U.S. economy but raising inflationary risks.

Global economic growth is at its strongest in three decades and risk-hungry investors have pushed up world stocks to record highs over the past week.
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However, the world's biggest economy lost momentum with its growth hitting its weakest rate in four years in the first three months of this year. Euro zone growth is at its best since 2000 and China's economy is expanding at a blistering pace.

"The U.S. economy might be slowing down a bit, but it's still doing very well and fundamentals remain good... We are not talking about recession or significant slowdown," Muhammad Al-Jasser, vice governor of the Saudi Arabian Monetary Agency, told Reuters.

"Whatever slowdown that may be happening in the U.S. is being compensated for by more robust growth in Europe and Asia and the rest of the emerging markets, which are collectively doing very well," he said on the sidelines of a two-day meeting of top central bankers at the Bank for International Settlements.

[David Randolph]

Thanks for the informative article Houlahan

As one can see on my long term valuation model, I consider TZOO to be attractive over the long term, with a 44.98% estimated share price compound annual growth rate going forward. But I must say that I don't expect the stock to move to the upside before there are publicly known fundamental improvements, and that's probably going to take at least three months.

I feel I can sell TZOO here, put the exact same amount of money in another stock, get the money I lost here back and then reenter TZOO again at roughly the same price I'm going to sell it today.

I have a strategy, and discipline, but I'm not a robot. I'm flexible to achieve what I believe are the superior interests of the Main Portfolio, and its pursuit of an outstanding investment performance.

I believe I know the exact stock to make the switch, which is GOAM. I'll explain why on that stock's thread.

The trading plan for TZOO is SELL. I'll get back to it a couple of weeks from now.

[Garoh]

David I think you should wait 2 days before you sell , because the stock gave a good sign yestreday .. it should move higher soon ...

Its up to you ...

[David Randolph]

David I think you should wait 2 days before you sell , because the stock gave a good sign yestreday .. it should move higher soon ...

Its up to you ...

Thanks for your opinion Garoh, of course, everybody is free to do what he thinks is best, my job is to write about what I think is the best course of action for a long term above average performance. I wouldn't mind buying TZOO higher than what I'm about to sell.

Good luck Garoh and others that will keep holding TZOO

[pinoleropuro]

I was a little late getting in but that may not be too bad. I bought at 29.10.  If the last valutation model still remains true I am holdong my position since I actually bought after the dip. I guess I'll be waiting for you guys to come back in three months from now.

[Ares]

Are my scribbles far fetched?

Green being the buy zone and red being the sell zone.

Hopefully, TZOO already used the black descending trend line and $27 horizontal line as support areas.

Stochastics and rsi(14) are oversold but MACD is below zero without any sign  of a bullish divergence so far.

Looking forward for comments.

[pinoleropuro]

RSI and Stochastic indicate over sold volume picked up a little bit hopefully this means its slowly but surely starting to come back

[David Randolph]

Ok, as promised, TZOO will be back to the Main Portfolio today. I've been checking their business potential and feel it is too cheap at these levels (well, I thought it was cheap the first time I bought it at $39.3, but a disappointing quarter took it down in an horrible gap down).

The following press release explains TZOO's business quite well, I believe:

• Travelzoo Tops Half a Million Subscribers to its Canadian Publications
PR Newswire (Mon, May 28)

The company's European and Asian businesses are still just starting (and they've been losing money), but I think the business model being the same, I don't see why TZOO should fail in Europe and Asia, after being so successful in the US.

So, it's just a matter of time for revenues and profits to double or triple due to international expansion. The stock should double or triple too.

In terms of the valuation model, I estimate:

1) Dilution factor

0.98, TZOO has been buying back shares.

2) Revenue CAGR

23.3%, that's the conclusion I got to over the following update.

3) Net Profit margin estimate

30%. When the European business unit stops losing money and starts earnings some, net profit margin will probably climb from 24% to 30% or so.

4) EPS multiple estimate

31.84. It's the Internet Information Providers industry average.

Given these estimates, the valuation model looks like this:



Final estimated share price is $86.08, share price CAGR is 50% and the optimal selling price is $55.94. I find this very attractive.

The trading plan is:

Buy TZOO, 6.66% of capital as always.