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What Travelzoo Must Do in 2012

With 2012 just beginning, now's a great time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should keep buy it for your portfolio -- or sell it if you already own it.

Today, let's take a look at Travelzoo (Nasdaq: TZOO  ) . As I discussed in more detail last month, the travel information provider took advantage of the popularity of daily deals to vault into the stratosphere early in 2011 before falling back to earth later in the year. But while some think the company's down for good, others see the potential for it to rebound. Below, I'll take a closer look at what people expect from Travelzoo and its rivals.

Forecasts on Travelzoo

Median Target Stock Price $34.50
2011 EPS Estimate $1.37
2012 EPS Estimate $1.66
Expected Annual Earnings Growth, Next 5 Years 17%
Forward P/E 18.6
CAPS Rating **

Source: Yahoo! Finance.

How will Travelzoo do this year?
With Travelzoo, analysts don't appear certain about what to expect. Although they expect fairly strong earnings growth this year, analysts have pegged their target stock price just 10% or so above its current level. Moreover, Motley Fool CAPS members aren't convinced that the stock can rebound from its 2011 losses.

The problem with Travelzoo is one that has pervaded the entire daily deals space: a lack of follow-through buying. A recent Rice University study found that 32% of businesses lost money using Groupon (Nasdaq: GRPN  ) promotions, with only 36% of customers spending more than the value of the immediate deal that Groupon offered.

But to a large extent, deals-related stocks got punished beyond what their results justified. For instance, OpenTable (Nasdaq: OPEN  ) lost about half its value in 2011, but the company consistently posted strong earnings and defied the recession to improve both its restaurant penetration and the numbers of reservations secured. Travelzoo saw a similar disconnect, as sales rose 31% and earnings grew strongly once you exclude a one-time settlement with the state of Delaware.

What may eventually save Travelzoo are behemoth players seeking a quick entry into the space. With Microsoft and (Nasdaq: AMZN  ) among  the big players looking for spots in the daily deals market, a buyout could give shareholders a quick payday -- and one that they might later be happy to have taken advantage of, given the questionable history of companies overpaying for tech-related acquisitions.

Travelzoo has good prospects, but we think you can do better. Read about the Motley Fool's pick for the top stock for 2012 and its connection to discount-hungry consumers. The report is free, but it won't be there forever, so check it out today.

Click here to add Travelzoo to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Microsoft, OpenTable, and Motley Fool newsletter services have recommended buying shares of, OpenTable, Microsoft, and Travelzoo, as well as creating a bull call spread position in Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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Related Tickers

10/27/2016 4:00 PM
TZOO $11.65 Up +0.75 +6.88%
Travelzoo CAPS Rating: **
AMZN $818.36 Down -4.23 -0.51% CAPS Rating: ****
GRPN $4.10 Down -1.16 -22.05%
Groupon CAPS Rating: *
OPEN.DL $0.00 Down +0.00 +0.00%
OpenTable CAPS Rating: *