An Audacious Pick for Your Watchlist

stocks and travelBy Brian Stoffel, The Motley Fool

Before telling you about this stock, I have to warn you: It's not for the faint of heart.

Fool co-founder David Gardner has made a career out of bucking conventional wisdom in his Rule Breakers newsletter, and bucking conventional wisdom is exactly what I'm doing today. If you have the stomach and fortitude of a Rule Breaker, then Travelzoo (TZOO) deserves a place on your watchlist.

You Mean the Company That Always Spams my Mailbox?
OK, I'll admit it: I, too, thought the fact that this company was publicly traded was a joke. But time and again, it has shown up in my screens for the Next Rule Breaker. In fact, one of the criteria David uses in evaluating his stocks is that they should have a documented history of being viewed as overvalued. With a P/E approaching triple digits and a CAPS rating of just one star, Travelzoo definitely fits that bill.

The Other Five Signs of a Rule Breaker
Upon closer examination, we'll see that Travelzoo has more than just one of these Rule Breaking characteristics.
  1. Top dog and first mover in an important, emerging industry: I used to think Travelzoo played second fiddle to travel site priceline.com (PCLN). In reality, though, I was comparing apples to oranges. priceline has positioned itself as a portal where customers and providers can bargain on prices, much the same way eBay functions with other products. Travelzoo, by obtaining deals that aren't available anywhere else on the Web, is much more like Groupon. And they are gaining in popularity.
  2. Sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors: Travelzoo has strong business momentum in its favor. Revenues increased 15% and 20% in 2009 and 2010, respectively -- meaning that revenue growth is accelerating. Net income, meanwhile, increased 153% over the past fiscal year.
  3. Strong past price appreciation: Travelzoo shares are trading 385% higher today than they were one year ago.
  4. Good management and smart backing: This is one of my favorite things about the company. Founded in 1998 by then-journalist Ralph Bartel, Travelzoo's higher-ups have remained virtually unchanged since the company's founding. Three years ago, Bartel handed over the CEO reins (he's still chairman of the board) to his brother, Holger. The three other members of the board have all been there from the very beginning.
  5. Strong consumer appeal: This is where my real education recently took place. I used to throw Travelzoo in the same basket as travel websites like Expedia (EXPE), Orbitz (OWW), and Travelocity. That was an oversight on my part. Instead of just reprinting bargains that you could find on a competitor's site, Travelzoo's flagship "Top 20" weekly emails contain deals that are available only through Travelzoo. And these aren't deals that will end up with you in a shack on some deserted island.
A friend of mine just got back from a weeklong stay in Panama at a four-star hotel courtesy of Travelzoo. In fact, 60% of Travelzoo users end up going somewhere that they weren't originally intending on visiting. Users weren't using Travelzoo for deals to a specific place, they were going to where Travelzoo's deals were -- surely a sign of strong consumer appeal.

What Do You Think?
With plans to expand abroad and launch a new Local Deals package, things could get interesting. But what do I know? Sound off in the comments section below to let me know if I've truly gone off the deep end on this one. And if you don't think I'm nuts (here's looking at you, mom) don't forget to add Travelzoo to your watchlist.

Fool contributor Brian Stoffel does not own shares in any of the companies mentioned. eBay and priceline.com are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.

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goofy12204

I get it, we should not cut any programs and entitlement programs, and just raise taxes on the "rich"..............................seems like a new idea to me..................this is what you get when you have a person way in over their head running the country. Now I know why Sean Penn wanted to leave the US and go to Canada..................

April 14 2011 at 7:25 AM Report abuse rate up rate down Reply
yourcountry2

What happened to the "Tea Party is ruining Social Security" article? It wasn't on long. AOL couldn't take the heat, I guess.

April 11 2011 at 9:27 PM Report abuse -2 rate up rate down Reply
priority109

why ARE ALL THE good topics over on huffing_hO ? ...bad enough to sign on to aOl but huffing_ho's a total waste of time with all the braindead drone/zombies blOGging away and when you present a fact--you wind up banned-should we bother to complain to aOl ? floors yours as these financial threads are basically all a fantasy land anyway.....

April 11 2011 at 2:05 PM Report abuse -2 rate up rate down Reply