Buy Despegar.com As Earnings Take Flight
Buy Despegar.com, Corp. (NYSE: DESP)
Target: $39
Buy Up To: $30
Options Trade: Unfortunately Despegar.com does not trade options yet. The company is a fairly new IPO so this is not unusual. I will be watching to see when options begin trading and will likely have something to recommend at that time.
Despegar.com is a Latin American online travel agency that came public last fall. The company sold 13 million shares at $26. The stock got as high as $36 this March before retreating a bit with the market.
The company’s growth profile is something to admire. Revenue is growing in the high 20% range and profit margins are expanding. General and administrative expenses are rising, but not as fast as revenue.
This unusually profitable combination of events is propelling earnings significantly higher. Revenue in the fourth quarter grew 30%. Growth in the number of customers and an increase in price per transaction drove the increase. Highly profitable package deals, which bundle flights and hotel, are becoming a bigger part of the mix and are one of the levers behind higher earnings growth.
With just 40% of its outstanding shares available to trade, the stock’s liquidity might not be robust enough for large funds. However, if the company issues a secondary, which I expect it might, the stock will hit the radar of bigger buyers.
The company announces its first quarter on May 10.
Stock Talk
Darryle
28.85 @ TOS
You must be logged in to post to Stock Talk
Daniel Long
DESP filled for 29.00 @ Fidelity.
DL
You must be logged in to post to Stock Talk
DJ
is this ok to buy still as long as it is equal/less than buy price?
Linda McDonough
Hi DJ,
See my note regarding SYF as well. The suggested buy limit price is not a hard and fast number. Many subscribers buy above that price, depending on what their risk profile is. Obviously, buying at a higher price may limit the upside gain in a stock.
Best,
Linda
You must be logged in to post to Stock Talk
You must be logged in to post to Stock Talk
DJ
I am new member. is DESP still ok to buy as long as it is equal/less than buy price? you talk about “dollar cost averaging” how frequent do i space out my buys and in what time frames (in days, weeks, months)?
Linda McDonough
Hi DJ,
As an editor, I am prohibited from giving out individual trade advice.
My buy up to limits and targets are suggested prices but many subscribers trade to suit their investment plan.
My stock suggestions are usually in the Profit Catalyst Portfolio for 9-15 months, so hopefully, that gives you some guidance on how quickly you’d like to accumulate a position.
Best,
Linda
DJ
Thanks Linda. One More question. So Can target price be interpreted as your research telling us that stock will go maximum to $39 from current buy limit and if it truly does, we sell out at that $39 price?
Linda McDonough
HI DJ,
The target is my best estimate of where the stock might go over the next 12 months based on current fundamentals. I attempt to update the targets when earnings or events differ significantly from my original thesis.
Best,
Linda
You must be logged in to post to Stock Talk
You must be logged in to post to Stock Talk
You must be logged in to post to Stock Talk
You must be logged in to post to Stock Talk
Ray
Has anything fundamentally changed with DESP? The stock price is acting like there has been a change.
Thank you for any new guidance or analysis.
Linda McDonough
Ray,
I’ve reviewed DESP’s recent quarter and all looked in order. The company beat revenue and earnings estimates. Management does not provide guidance, which can be difficult for investors to digest. Management noted it will increase marketing spend this year which may impact profits but offered no quantification. I haven’t seen a shift lower in estimates and believe better than expected revenue will compensate for the incremental spending.
Best,
Linda
You must be logged in to post to Stock Talk
You must be logged in to post to Stock Talk
Michael B
What is going on with DESP? After a drop of over 20% since it was recommended I finally couldn’t take it anymore and unloaded half my position. Might have gotten out too soon but once a stock continues on a downward trend I feel it is time to throw in the towel.
Linda McDonough
Michael,
It’s been a frustrating stock. I like to keep a lid on the losses so am nearing a pain point myself. As a new issue, it doesn’t have many loyal shareholders and management doesn’t give specific guidance quarterly, which I think freaked out some holders. The company will be at an investor conference on June 12th so I’m holding on until then to see if they give more color. The fundamentals to date have been good.
Best,
Linda
DJ
Hi Linda,
Do you have good rule of thumb that you can share about % loss per trade before one should take the get out of the trade?
I guess I will also wait it out till June 12th. Will you send out alert to get out of that trade?
You must be logged in to post to Stock Talk
You must be logged in to post to Stock Talk
You must be logged in to post to Stock Talk
Wallace Rodriguez
DESP CONTINUED ITS DOWNSPIN. – ANYTHING I MISSED? – IM 28% DOWN
Linda McDonough
Wallace,
I’ve been digging but not finding anything concrete to explain the weakness in the stock.
I have several theories, none of which change my bullish thesis on it.
1. The weakness in the Argentina Peso and the Brazilian Reais are the most likely culprits for the soft stock. Most of DESP’s revenue is in these currencies which get translated into U.S. dollars. When those currencies fall, as they have been, this translates into less U.S. dollars for DESP. However, expenses also fall so the net result is usually not very dramatic.
2. DESP’s IPO was priced at $26. 12.7M shares were sold at this price. As the stock fell below this price, many funds who were perhaps not as committed to the name and sold the shares as they fell to a loss. (Many big funds get allocations of IPOs that they don’t know much about and are what I consider “loose” owners, that is less loyal).
Best,
Linda
You must be logged in to post to Stock Talk
You must be logged in to post to Stock Talk
Howard
Does the CFO’s resignation change your opinion of this stock?
You must be logged in to post to Stock Talk
Linda McDonough
Despegar.com announced today that Mike Doyle, the Company’s Chief Financial Officer, has tendered his resignation effective August 31, 2018. Doyle has been the company’s CFO since June 2013. While it is never the best news that a CFO is leaving, Doyle has been based in Seattle before so the relocation explanation offered by the company makes sense.
It is a very good sign that he is coming on the Board of Directors immediately following this departure. If any concerns regarding accounting issues existed, he would likely avoid that position.
The stock has been a real dog but there has not been any updates from the company or in the sector. As I’ve noted before its trading seems correlated to the Argentine peso, which has been stable but not yet improving in the past few weeks.
The company will announce earnings on or about August 16th. I expect the stock to rebound if the company makes estimates of $146 million in revenue and $.07. Both estimates look very reasonable to me.
You must be logged in to post to Stock Talk
Add New Comments
You must be logged in to post to Stock Talk