A few years ago, all anyone was talking about was the preference of consumers for “experiences” over “things.” That made sense at the time because we were coming off of a global pandemic that had many rethinking their priorities, so spending on things like concerts, travel, and vacations was much more attractive than buying a new washing machine or whatever. 

But we no longer hear much about that shift, so what changed? Really, nothing much, but the lack of attention to that has created some value in stocks that have benefitted from it.

The main reason for the story fading is the current nature of the news business. For those who still subscribe to cable TV, there are at least three dedicated business channels available: CNBC, Fox Business, and Bloomberg TV. To someone like me, who grew up in an era when business news was only reported when there was a big stock market crash, that is an incredible thing and it has a lot of advantages. Individual investors are much better informed than they used to be, so much so that they no longer need to pay brokers and advisors massive fees to keep their ears to the ground and manage money. The self-directed investor is now a thing.

There are, however, disadvantages. The competition among the big three business news channels has led to the kind of “dumbing down” and sensationalism that we have seen in mainstream news over the last couple of decades too. And the 24/7 news cycle means that when a story gains traction, it is repeated ad nauseam. Those two things often combine to pump out a simplistic story or a catchphrase until its original meaning gets lost and everyone loses interest in it. The “experiences” thing was an example of that, but the thing that drove the original story hasn’t gone away.

American consumers’ spending on travel and experiences is still rising, up 30% in 2023 over the already elevated 2022 numbers. And yet with the story fading from view, the stocks that have the potential to benefit from it have been seriously underperforming the market. A look at the 3-month performance of the travel giant and parent of VRBO, Expedia (EXPE), the green line on the chart below, as compared to the S&P 500, the main body of the chart, clearly shows that underperformance.

The story that gave those stocks a boost has faded from the news, but the dynamic that spawned the story is alive and well. People are still spending more each year on travel and experiences but, as the story has faded, the market has stopped pricing that into stocks in those industries. That creates an opportunity for investors.

For example, the PEG ratio for EXPE, the price to earnings ratio divided by expected growth over the next year, a metric where a reading below 1.0 typically shows value, is currently 0.38. That, a forward P/E of below 10 and a price to sales ratio of 1.27 all point to value in the stock.

The fading of the experiences story is not the only reason for that, of course. EXPE has disappointed the market in its last couple of earnings calls by releasing lower-than-expected guidance, which will almost always cause a stock to drop. However, the evidence so far suggests that this is unwarranted pessimism rather than rational projections into the future. To wit, EXPE has beaten estimates for EPS in each of the last four quarters:

Also weighing on the stock is the underperformance from VRBO, particularly in relation to its main rival Airbnb (ABNB)*. However, in their most recent earnings announcement, EXPE management admitted that the marketing budget for VRBO had been cut but was being reinstated. That is something which will have negatively impacted performance, but performance is likely to improve with revamped marketing and advertising. 

In addition, VRBO accounts for around 25% of Expedia’s revenue, a not insignificant amount, but far from the majority. With such low forward valuation metrics and a logical reason to expect growth in the company’s addressable market, even a slight improvement in VRBO’s numbers when offset by continued growth in the travel segment of their business will see a reevaluation of the company’s prospects and an upward adjustment in the stock.

So, the future for EXPE looks bright, or at least brighter than the market is currently suggesting, and a lot of that seems to have to do with the story that underlies that future losing traction in the media. That is understandable given the nature of the news business, but not as a reason to sell a stock, so EXPE looks ready to bounce back before too long.

*At the time of writing, the author is long ABNB

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.