Wednesday, May 23, 2012

TRIP: Testing the blue skies.

Tripadvisor Inc. (TRIP) does just what the name says -- it advises people when their planning a trip, with reviews and information about flights, vacation rentals, packages, resorts, hotels. It relies heavily on user reviews and is tied closely into Facebook accounts.

The Newton, Massachusetts company used to be part of the ticketing company Expedia and was spun off at the end of last year.

What's not to like about this business model is the European debt crisis and the two dozen other possibilities that make us all nervous about our financial well-being. Travel for fun is an optional part of most people's lives. If the Euro Zone breaks up and we all go into a second recession, then Tripadvisor's business will drop off.

TRIP had the most bullish chart of 16 higher-volume stocks among 87 added today to the Zacks top-buy list.

The stock's current levels were reached after a 28% earnings surprise prompted an 18% upside gap on May 2.

TRIP has been trading mainly in blue-sky territory, although that's not a huge achievement for a new listing. There aren't all of those pre-recession bubble levels to cast a shadow of price resistance on TRIP's rise.

TRIP began its most recent leg up on May 21 from $40.87, part of a mid-term rise from Feb. 15 from $27.80, or even an all-time rise from its first day of trading, from $30 on Dec. 19, 2011.

The price set a higher high -- all-time high -- of $44.48 today, but then drew back below the prior peak of $44.46 on the May 2 gap day.

The overall structure from the May 2 gap until today counts as a sideways move. Today's breakout failed to hold, and the near-term trend counts as neutral until the price moves persistently above the $44.46 level.

Notably, the first up-day of the current three-day rise came on lower volume from the prior trading day, and volume has remained low relative to that level.

TRIP has return on equity of 83% but with a high level of long-term debt, amounting to 104% of equity.

This new listing has only two quarters of earnings history. The most recent quarter was higher than the one before with an upside earnings surprise. The quarter before had a slight negative surprise.

Institutions own 76% of shares. The price has been bid up to an extraordinary high multiple of sales. It takes $8.33 in shares to control a dollar in sales.

On average TRIP trades 2.9 million shares a day, enough to support a broad selection of options with high open interest and fairly narrow bid/ask spreads.

Implied volatility stands at 45%, about a third of the way from from the six-month low.  It has been rising since May 14, with one short correction to the downside.

Traders are pricing in a 68.2% chance that the stock will close between $38.22 and $49.58 a month from now, for a maximum 13% gain or loss.

The company will next publish earnings around Aug. 1.

Decision for my account: I'm not trading TRIP for reasons that have to do with my own account. My funds are pretty much fully committed. If I were trading TRIP, it would be as options after a persistent break above $44.46. I wouldn't open a bull position immediately. I would look hard at the high price level relative to sales. It's not necessarily a deal breaker, but it tells me some folks will be wanting to take profits. For longer term traders, the high level of debt is something to note.

I screened the stocks using a tourney bracket with a six-month daily chart and a five-year weekly chart. See my essay "10,000 Charts" for a discussion of my screening methods.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

No comments:

Post a Comment