Which Online Travel Company Has the Most Upside in 2014?

Clearly, it has been a great year for online travel sites. Orbitz Worldwide (NYSE: OWW  ) and of course Priceline.com (NASDAQ: PCLN  ) have been top market performers in 2013. Expedia (NASDAQ: EXPE  ) has been the worst performer within the space, but with such strong fundamental performance throughout, which of these three might see the best year ahead?

A good all-around company
Priceline.com is the most visible online-travel company in the U.S. with the largest market capitalization, and its 92% annual gains have likely boosted sentiment throughout the space.

For the full year, Priceline is expected to grow sales by 28.6% and then another 23.5% next year. The company has grown via mobile traffic, market share, 38% increases in hotel bookings globally, and acquisitions.

Moreover, the company continues to sport an industry-best operating margin at 35.9% and saw its gross margin soar to 42% in its last quarter from 37.8% in 2012. While the stock trades at just 23.4 times next year's earnings -- a popular metric for retail investors -- its 9.5 times sales valuation is rather pricey.

All over the place
Expedia has been all over the place in 2013, posting both solid and disappointing quarters. Therefore, its stock has gone virtually nowhere this year, but despite this fact, total sales are still on pace for 18% year-over-year growth in 2013. Moreover, the company is expected to grow another 14% in 2014.

While this growth is not like Priceline.com, Expedia's valuation is also significantly cheaper. The company trades at just 1.9 times sales and 18 times next year's earnings. Moreover, Expedia does not have the margins of Priceline.com. In fact, Expedia's operating margin is just 10.4%, or less than one-third of Priceline.com's.

Investors can view this in one of two ways: Either Priceline.com is the better company or Expedia has the most room to improve.

A fluke year?
Orbitz has gone from a fading company to one that's now seeing growth. After a three-year period between 2010 and 2012 where growth was non-existent, Orbitz's stock was particularly cheap in 2013, priced for a worst-case scenario.

Therefore, despite expected growth of 8% in 2013, Orbitz trades at just 0.9 times sales, or about half of Expedia. The problem that some investors might have with investing in Orbitz is that 2013 might in fact be a fluke, as analysts are now projecting sales growth of only 3.6% in 2014, which is far below the industry's sub-20% growth.

Two companies with obstacles in 2013
With all things considered, Orbtiz has been a great story in 2013, but with growth fading it's hard to imagine a repeat. In this industry, growth is the key value driver, and Orbitz simply does not fit the part.

Priceline.com is unarguably a great company. It has industry-best margins, great growth, high exposure, and makes wonderful investments. In fact, Priceline.com earns a mind-boggling 35.7% return on equity, which basically means that it hits a home-run and creates growth on all or most of its investments and holdings. But as previously mentioned, the question becomes whether there is still room to improve. 

Moreover, at 9.5 times sales, bullish investors will note that Priceline.com is cheaper than other Internet-based companies, like Facebook at 20 times sales. However, these investors must also acknowledge that companies like Amazon.com and Google trade at 2.6 and 6.3 times sales, respectively, with very similar growth. As a result, Priceline.com might be a little risky or due for a pullback after its five-year 1,600% return.

The most to gain
This leaves Expedia, a company that's also growing fast and has made far more mistakes over the last few years. Its 5% return on equity reflects a company that's not made the best investments, but combined with its margins, this is a fast-growing and cheap company that has a lot of room to improve.

Moreover, Expedia does appear to have hit a home-run with Trivago, which is a leading European hotel-search site. In Expedia's last quarter, Trivago accounted for 6% of the company's 20% year-over-year revenue growth and is on pace for 85% growth in 2013. Therefore, Trivago is a major piece of the Expedia equation, a company acquired for $564 million back in March.

Trivago will serve as a huge catalyst in 2014, and even without, Expedia is still seeing double-digit growth. Therefore, combined with its valuation, and its poor performance in 2013, Expedia looks like the best option heading into 2014, an online travel company that could trade significantly higher. 

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