It's been a mere four months since my Special Situations portfolio picked up shares of TripAdvisor (NAS: TRIP) following its spinoff from Expedia (NAS: EXPE) . But, with the recent run-ups on Expedia's first-quarter earnings and now its own earnings results, it's time to bid TripAdvisor bon voyage and take our nearly 50% gain on to another great special situation.
I originally purchased the stock to take advantage of the spinoff, in the classic Joel Greenblatt special situation. TripAdvisor is the fast-growing, high-margin component of the former Expedia, while Expedia itself is the slower-growing, less profitable division. Also attractive is TripAdvisor's low need for capital expenditures, meaning it's a cash machine. So I expected it to attract the interest of investors, who probably would assign it a high multiple.
TripAdvisor has a competitive advantage in its review system that attracts viewers who then provide more reviews, resulting in a virtuous circle and some nice network effects. I also like the fact that 62% of sales came from the U.S., giving the company plenty of room to expand internationally.
Shares came out of the spin around $28 a pop and have now run to more than $42 -- a 50% gain in a little over four months. That move up values the stock at what I estimate to be 20 times the EV/EBITDA multiple for 2012 earnings. And while the company has some formidable growth opportunities overseas as well as domestically, I think it's pretty richly priced here. So I'll be unloading the shares from my Special Situations portfolio.
So long, TripAdvisor. It was a fun journey!
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At the time this article was published Jim Royal, Ph.D., owns shares of TripAdvisor. The Motley Fool owns shares of TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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