July 21, 2011
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of online travel deal specialist Travelzoo (Nasdaq: TZOO ) plummeted 30% Thursday after its quarterly results easily missed Wall Street expectations.
So what: Hurt by a spike in costs and weaker-than-expected growth at its European newsletter business, Travelzoo posted a second-quarter profit of $0.30 per share, versus the average analyst estimate of $0.38 per share. The shares had been on fire over the past month, trading at a lofty forward P/E of 36 as of yesterday's close, so today's big plunge comes as no surprise, as investors look to significantly readjust their growth expectations.
Now what: I wouldn't be so quick to pounce on today's pullback. Even with the drop, Travelzoo is up a whopping 275% over the past year and still trades at a forward P/E premium to main rivals Expedia (Nasdaq: EXPE ) and priceline.com (Nasdaq: PCLN ) . In other words, if rising costs and slowing European growth continue to be a problem, Travelzoo has plenty of more room to fall.
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