Please ensure Javascript is enabled for purposes of website accessibility

Has Travelzoo Become the Perfect Stock?

By Dan Caplinger - Apr 2, 2013 at 10:10AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The travel-deal company has tried to return to its roots, but will it find growth there?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Travelzoo (TZOO 7.61%) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Travelzoo.


What We Want to See


Pass or Fail?


5-year annual revenue growth > 15%




1-year revenue growth > 12%




Gross margin > 35%




Net margin > 15%



Balance sheet

Debt to equity < 50%




Current ratio > 1.3




Return on equity > 15%




Normalized P/E < 20




Current yield > 2%




5-year dividend growth > 10%




Total score


5 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Travelzoo last year, the company has dropped a point, as revenue growth has come to a near-standstill. Its stock has also suffered, falling nearly 10% over the past year.

Travelzoo has a long history for an Internet-based company, having survived the tech bust to remain a player in the travel-deal space. Over time, Travelzoo has gone through multiple transformations, having gone from a mere subscription-based listing of top travel bargains to tap into the daily-deal trend that took over social media in recent years.

Unfortunately, the flash-deal model hasn't really worked well. Groupon (GRPN 22.22%), which brought daily deals to the forefront, has persistently lost ground as it struggles to figure out how to go beyond its original business model to incorporate new services like payment processing. Restaurant social-media company OpenTable (OPEN) also dabbled in the space before retreating to its core reservations business, and shares of the company have responded very favorably to the shift.

As a result, Travelzoo has moved away from daily deals, instead looking to return to its original business model while tapping into international growth. That's a strategy that travel-portal (BKNG 4.74%) has executed to perfection, crushing its portal rivals over the years by creating a truly global network of hotels and other travel services that make it a go-to site for world travelers.

For Travelzoo to improve, it needs to mine those new sources of revenue and reawaken its growth. Otherwise, it'll have a lot of trouble getting much closer to perfection.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

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

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Travelzoo Inc. Stock Quote
Travelzoo Inc.
$6.65 (7.61%) $0.47
Groupon, Inc. Stock Quote
Groupon, Inc.
$13.97 (22.22%) $2.54
Booking Holdings Stock Quote
Booking Holdings
$2,147.22 (4.74%) $97.16
OpenTable, Inc. Stock Quote
OpenTable, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.