Getting good advice when you travel can be extremely valuable, and for much of its existence, TripAdvisor (NASDAQ:TRIP) focused its attention squarely on gathering reviews and other information about various aspects of travel. From hotel reviews to information about sightseeing and other local attractions, TripAdvisor built up a reputation as the go-to place for travel info.

Yet the online travel industry is fierce, and TripAdvisor decided that it needed to branch out with more services to allow its customers not just to get information about travel, but also to act on it by offering direct booking services. That transition has been a challenging one, but the online-travel specialist has done a good job thus far. Below, we'll look more closely at TripAdvisor and key aspects of its business, such as growth prospects, financial condition, and current valuation.

Certificate of excellence for TripAdvisor.

Image source: TripAdvisor.

Sales growth

TripAdvisor's sales-growth history has been mixed. The company has seen explosive growth over the past five years, with its top line doubling between 2012 and 2017. Yet that progress has slowed more recently as TripAdvisor suffered a sales decline in 2016 and saw just a 5% pickup in revenue last year.

TripAdvisor has seen the greatest difficulty in building sales in its core hotel-based business. In its most recent quarter, TripAdvisor posted overall revenue gains of 2%, which was better than the slight decline that most investors had expected. However, much of the strength that TripAdvisor enjoyed came from substantial gains in attractions and restaurants, which helped lift segment revenue for the company's non-hotel unit by 20%.

Although revenue from display ads and subscriptions linked to hotels were up substantially, click-based and transaction revenue for the unit dropped more than 10%. CEO Steve Kaufer believes that TripAdvisor can grow more quickly through enhanced products and an improved user experience, but it could take time to execute on those goals for the long haul.

Financial condition

TripAdvisor has been smart about keeping its balance sheet healthy. The company has done a good job of reducing its debt exposure over time, taking its debt-to-equity ratio down from 57% in 2012 to just 24% currently.

That discipline has allowed TripAdvisor to jump on strategic opportunities when they arise. For instance, the company last year decided to boost repurchases of stock to take advantage of lower share prices. That was possible in part due to drawdowns from TripAdvisor's 2015 credit facility. Without the flexibility to make those capital moves, TripAdvisor might not have been able to pick up its own shares on the cheap and missed out on what could prove to be a bargain opportunity.

Current valuation

TripAdvisor remains a highly priced stock in terms of valuation compared to earnings. Recent changes to tax laws have created one-time impacts that make it almost impossible to use trailing earnings as a valuation benchmark. On a forward-looking basis, however, TripAdvisor stock currently trades at about 35 times near-term future earnings projections. That forward multiple has stayed relatively constant in recent years and has expanded substantially from the early 2010s.

As growth has slowed, those high valuations have become increasingly troubling. If TripAdvisor's growth initiatives pan out and lead to accelerating top-line gains, then current multiples could be warranted. Otherwise, it's hard to justify above-market multiples if sales growth slows.

Capital allocation

TripAdvisor doesn't pay dividends, which makes it unattractive to income investors. However, as mentioned above, the company has recently found ways to return capital to shareholders through stock buybacks.

In particular, TripAdvisor has ramped up share repurchases over the past year, having spent $250 million on buybacks in 2017. The company spent that money buying 6.08 million shares at an average price of just over $41 per share. In January, TripAdvisor replenished its buyback capacity by authorizing an additional $250 million of repurchases. There's no guarantee that'll get done, but if it does, it could help support share prices and boost per-share earnings further.

Wait and see

At this point, TripAdvisor hasn't yet demonstrated its ability to return to the higher-growth trajectory that it enjoyed throughout much of its history. A lot depends on the company's current transformative efforts, as success there could create a new era of prosperity for TripAdvisor. Unless you're willing to take that big gamble in a highly competitive industry, however, TripAdvisor isn't an unqualified buy right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.