eyeQ: two more cheap stocks for optimists
interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to analyse macro conditions and generate actionable trading signals. Risk/reward favours the glass half-full approach this time.
9th May 2024 12:31
by Huw Roberts from eyeQ
“Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance.” eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Expedia
Trading signal: long-term strategic model
Model Value: $137.749
Fair Value Gap: -23.49% discount to model value
Macro relevance: 70%
Data correct as at 9 May 2024. Please click glossary for explanation of terms.
Expedia, Booking.com, Airbnb – where next for travel stocks?
Last week it was Booking Holdings Inc (NASDAQ:BKNG) and Expedia Group Inc (NASDAQ:EXPE). This week it’s Airbnb Inc Ordinary Shares - Class A (NASDAQ:ABNB). Three travel-related stocks have all now warned that they’re experiencing a bit of a slowdown. All three have seen their share price take a hit.
Is this a sign that the “revenge travel” investment theme is coming to an end? That consumers are starting to feel the pinch and dial back on big-ticket spending items such as holidays?
Possibly. It does make sense. You’d imagine there can only be so much pent-up demand after Covid lockdowns before some kind of “new normal” re-establishes itself. Moreover, this earnings season has also seen the likes of Starbucks Corp (NASDAQ:SBUX), McDonald's Corp (NYSE:MCD) and Amazon.com Inc (NASDAQ:AMZN) all warn that there are signs of fatigue among consumers.
But what is interesting is eyeQ’s model value for both Expedia and Airbnb is flatlining rather than heading lower. Macro conditions for both stocks have been improving throughout 2024. They’ve stopped going up, but they haven’t yet rolled over in any way.
That means that the recent sell-off has taken both into cheap territory on our smart machine. Expedia is 23.5% cheap on our model, while Airbnb is 6.83% cheap to overall macro conditions.
Some investors may prefer to wait and watch upcoming economic data to get a sense of whether the consumer is indeed becoming more cautious. Others may hope travel stocks benefit from a busy summer, including the Euros and Paris Olympics.
Either way, eyeQ will take all the macro stuff that impacts these stocks – economic growth, inflation, rate cuts, commodity prices - and disseminate it all into a single model value. A target price in effect.
And what we can say today, given all the information out there, is that a fair amount of bad news is now discounted into current levels. And, for eyeQ, that means the risk/reward is skewed and favours the optimists here.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long-Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
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