Analyst: Bearish Case For Tripadvisor Ends, But Growth Debate Continues

The bearish case for Tripadvisor Inc TRIP dates back to late 2017 and may have now played out after the stock's underperformance over the past six months, according to UBS.

The Analyst

UBS analyst Eric Sheridan upgraded Tripadvisor from Sell to Neutral with a price target lowered from $44 to $40.

The Thesis

Tripadvisor's stock has underperformed the broader S&P 500 index by around 33% over the past six months and is now trading at a more balanced risk-to-reward profile, Sheridan wrote in the upgrade note.

The company could enter a new era of sustained 15% or more EBITDA growth over the coming years, while the hotel business could also return to a mid-single digit growth rate in 2020 and beyond.

However, expectations for growth have yet to be confirmed through earnings reports. As such, the bull versus bear debate will remain in place and future moves in the stock in either direction will be tied to revenue growth among all segment components.

Management will also play a role in directing the stock's performance as future commentary on forward margins will likely be "the biggest determinant of share" performance from current levels, Sheridan said.

Bottom line, recent selling momentum likely implies investors are pricing in a "fair amount of uncertainty" over its ability to grow the business over the coming years, he said.

However, shares are trading at 10.5 times 2020 EBITDA estimates, which warrants a move to the sidelines instead of selling the stock.

Price Action

Shares of Tripadvisor were trading higher by 1.01% Wednesday at $37.44.

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