Booking currently trades at $4,940 per share and has shown little upside over the past six months, posting a small loss of 4.9%. The stock also fell short of the S&P 500’s 19.5% gain during that period.

Given the weaker price action, is now a good time to buy BKNG? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free for active Edge members.

Why Does BKNG Stock Spark Debate?

Formerly known as The Priceline Group, Booking Holdings (NASDAQ: BKNG) is the world’s largest online travel agency.

Two Positive Attributes:

1. Long-Term Revenue Growth Shows Strong Momentum

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Booking grew its sales at a solid 17.6% compounded annual growth rate. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers.

2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Booking has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 34.3% over the last two years.

One Reason to be Careful:

Growth in Customer Spending Lags Peers

Average revenue per booking (ARPB) is a critical metric to track because it not only measures how much users book on its platform but also the commission that Booking can charge.

Booking’s ARPB growth has been mediocre over the last two years, averaging 3.8%. This isn’t great, but the increase in room nights booked is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Booking tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether bookings can continue growing at the current pace.

Final Judgment

Booking’s merits more than compensate for its flaws. With its shares underperforming the market lately, the stock trades at 14.8× forward EV/EBITDA (or $4,940 per share). Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.

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