HomeAway (AWAY) stock has gone up-up-and-away since it reported third quarter earnings in November. With a P/E of around 50, AWAY is too high to buy. But a correction in the market could bring these shares back down to earth.
HomeAway operates a website that allows homeowners to rent their properties online, and for travelers to rent them. The concept sounds good, but the company isn’t growing revenues as fast as I think it should. Sales grew only 23% last quarter, which isn’t great for a unique Internet franchise with growth opportunity.
Recently, HomeAway moved from a pay-for-listing revenue system to pay-per-booking, where the owners put properties on the site for free and pay only when it is booked. This program has causes a surge in listings, and profits beat the street by 3 cents last quarter. Still, 50 times earnings is a lot for 23% revenue growth.
One Year Chart
Sales rose 23% last quarter, and profits popped 36%. The profit figure was excellent. AWAY was around $30 for much of last year, and now it’s around $40. I think the stock is too high.
Profits are expected to be flat this quarter, the next three-quarters profit growth is estimated to be 14%, 19% and 16%. That’s not great. AWAY beat the street by 3 cents last quarter, missed by a penny the quarter before.
Fair Value
I’m holding firm and not reaching for the stock at this level. Come down to $30 and we’ll talk.
Sharek’s Take
HomeAway is a good growth stock that’s priced like it’s a great growth stock. AWAY isn’t worth 50 times earnings in my eyes. On a positive note, the stock hasn’t fallen this month on bad stock market days — that means investors are supporting the stock. Still, I need this stock to fall into the low-$30s to consider buying it.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
