Various industries are going through extreme cycles of performance that began with the pandemic. But they're not going through this together; rather, the cycles have been staggered. First, e-commerce accelerated, dropped, and is now getting back to a new equilibrium. As physical stores reopened, they enjoyed a resurgence, and they're now slowing down.
It's finally travel's turn. The travel industry acutely felt the disruption of closed borders and lockdowns, and between different countries' timelines and people's own comfort with traveling, it's been a long road toward a full travel recovery. However, it's arrived, and travel companies have been benefiting from a steady rebound that's taken place over a long time frame.
Is that rebound coming to an end? Many analysts think so. The natural curve of a depressed market followed by a surging market finishes with a correction back to moderating levels. That means the increases that travel companies have been demonstrating might be slowing down fast.
In fact, many travel stocks are already reflecting this trend. Is trouble on the way? And should you embrace or avoid travel stocks right now?
Do all good things have to come to an end?
"Revenge travel," as some are calling the release of pent-up travel demand, is beginning to ease. This is illustrated by some budget airlines slashing prices to get more people to buy tickets.
Airbnb (ABNB +0.68%), Booking Holdings (BKNG 3.17%), and Expedia Group, which all demonstrated a massive pandemic rebound through surging revenue, are all posting slowing growth now.
Airlines are mixed, with budget carriers saying they're not filling seats, while larger airlines say demand is still healthy. Delta Air Lines reported third-quarter results last week that showed strong demand, higher revenue, and increasing profits.
NASDAQ: BKNG
Key Data Points
Booking Holdings, which runs a platform similar to Airbnb but includes hotels and other kinds of accommodations, is still the leader of the travel platform pack, with $19 billion in trailing-12-month earnings. It's also posting the fastest revenue growth: 27% in the second quarter vs. 18% for Airbnb. But both of these increases are much lower than previous quarters, and management is warning of continued strength, but further deceleration.
So although all of these stocks are up in 2023, they're all down over the past three months, as are other travel stocks like Delta and Carnival Corp.
Lower prices create opportunities
Wall Street is clearly disappointed in the future of travel, at least for the short term. But investing for the long term is all about finding great stocks to buy at fair prices, and dips can create compelling investing opportunities. It's precisely the negative market sentiment that provides the conditions to find bargain stocks.
All of these stocks are trading significantly below their three-year averages.
BKNG PE Ratio data by YCharts
Near-term prices will reflect short-term trends
That doesn't mean every investor should jump into a basket of travel stocks right now although some people might want to take that very approach.
However, investors can determine which stocks are likely to rebound over time and provide years of long-term gains. Booking Holdings is growing quickly and sporting an attractive valuation, but Airbnb may have a more expanded business and therefore more growth opportunities.
Long term, many travel stocks can support high gains for patient investors. Short term, they might go sideways or even trend downward as sales slow. But you can't time the market, so you if you can identify a stock with opportunity, you can consider buying now.
