Why TripAdvisor Stock Surged Today

MarketsMotley Fool

What happened

Share of online travel company TripAdvisor (NASDAQ: TRIP) jumped on Friday, a few days after the company reported its second-quarter results. On Wednesday, TripAdvisor stock initially tumbled on the earnings news, only to fully recover throughout the day. The stock then slumped on Thursday, but Friday's surge has more than erased that decline. An analyst upgrade appears to be a contributing factor, although post-earnings volatility is also at play. As of 3:37 p.m. EDT, shares were up 5.5%.

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So what

TripAdvisor's second-quarter results beat analyst estimates across the board. Revenue grew by 8% year over year to $424 million, while adjusted EPS was flat at $0.38. Those numbers beat analyst estimates by $2.5 million and $0.08, respectively.

The sluggish revenue growth and the lack of earnings growth may have pushed the stock down on Wednesday, but the stock ended up closing the day up slightly. Friday's surge pushes it to its highest level since May, although the stock remains down more than 60% from highs reached in 2014.

An analyst upgrade may have helped shares climb higher. Cowen & Company upgraded the stock to market perform back in July, attaching a price target of $40 per share. Cowen kept the market perform rating following TripAdvisor's report, but it raised its price target to $42 per share.

Now what

TripAdvisor stock's volatility is no surprise. The company's revenue growth has ground to a halt in recent years, with sales even declining in 2016, and earnings are well below their 2014 peak. While the stock has tumbled over the past few years, it still trades for nearly four times sales and around 60 times earnings. That kind of valuation coupled with sluggish growth is a recipe for big swings.

The company will need to return to robust growth before the stock has any chance of reclaiming its former highs. The second quarter didn't deliver on that front.

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Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool has a disclosure policy.