Traveling For The Holidays? Anyone…? Anyone…? (EXPE)

Online travel platform Expedia Group (NASDAQ:EXPE) saw its stock soar on news of Pfizer’s Batflu vaccine on November 9th.  The shares were up almost 25% on the day on hopes that travel would resume to pre-flu levels, and hotel and other bookings would return to normal.

FAT CHANCE, PAL!

The real numbers for the company, however, were released just four days prior, and they told a very different, damning tale.

The top line was up slightly (though lower by 58% from the prior year quarter), but earnings came in at negative $0.22.

It remains to be seen if we get the pick-up in travel that Expedia investors are apparently expecting.

For our money, it looks like it won’t happen soon.

Who’s got money?

Consider, too, the company’s fundamentals.

At the time of writing,

• There’s no P/E available, as earnings are negative (but forward P/E comes in at a wildly high, Kim Jong Un 194.6),

• Price to Book is 10.38 (online platform – right, we know…)
• There’s no dividend on offer,
• Debt to Equity is an outrageous 5.41,
• And there’s a tremendous short position – that we believe will only grow (currently 12.4% of float).
• Yes, that could lead to a walloping short-covering spike – as likely happened after the Pfizer news.
• But with an increasing number of analysts issuing downgrades, it seems unlikely.  Both RBC and UBS have done so since September.

WHO’S NEXT!?

Now look at the chart –

This is EXPE since the Batflu bottom in March.

1. What’s salient here is the price jump above the long-term moving average after the vaccine news was reported, and the need for a retest of that line before any move higher can ensue (in purple).
2. Note there was no follow-through on volume (in black) on subsequent days, meaning the volume spike could well have signaled a top.
3. That gap that opened at 105 (in blue) will have to be filled, and…
4. Because we got an overbought RSI signal as the pop higher occurred (in green), and
5. Because MACD is now rolling over, we’re suggesting the decline is now real and present, and should continue into December.

And it’s for that reason we’re recommending a speculative synthetic short on the stock that expires at week’s end!

And here are the details…

A Jew and His Money recommends you consider selling the EXPE November 27th 105 CALL for $14.50 and buying the EXPE November 27th 105 PUT for $0.27.  To protect the open short CALL, purchase an EXPE November 27th 120 CALL for $2.59.  Total credit on the trade is $11.64.

Rationale: with Expedia looking weak, we want to be positioned to gain from any downside. The synthetic PUT offers us exactly that for a credit of $14.23.

That said, with the stock sitting at $119.90, we’re currently in-the-money on the short CALL $14.90 – meaning that, if nothing happens between now and week’s end, we would lose exactly $0.67.

Should the stock move lower, as we expect, we would start to make money.

Should it move higher, however, we’d be in trouble.

And for that reason we’re recommending the purchase of the long CALL at 120.  That will cap our loss from the short CALL at $15.00, while the cost of the protective CALL would also be lost, for a maximum risk on the trade of $5.95.

Maximum gain is unlimited.

The trade is speculative due to the severe time constraints involved – just until weeks’ end.

Breakeven is $116.64 (just 2.7% below current price at $119.90).

Praise the Lord and pass the ammo, friends!

Pollard is free.  And good Jews and Noahides are celebrating everywhere!

G-d bless the Holy One.

With kind regards,
Hugh L. O’Haynew

Follow @HughLOHaynew