Expedia Group Stock: A Story of Growth and Value
The saga of Expedia Group (EXPE) stock unveils a narrative that excites value investors with its robust free cash flow. The Expedia Group narrative showcases a company on the cusp of explosive growth; witness the surge in bookings and rising revenues, all unfolding harmoniously. Buoyed by these positive indicators, the company finds itself in the enviable position of churning out copious amounts of free cash flow (FCF).
A recent GuruFocus article, “Expedia Group Looks Like a Bargain,” lays bare the rationale behind considering Expedia stock a pocket-friendly option. The FCF projections for Expedia hint at expanding horizons as capital expenditures take a back seat. Delve into the article to visualize a future where FCF for Expedia might soar high in 2024 and 2025.
The figures speak volumes, with EXPE stock potentially reaching $27.4 billion; a staggering 50% leap from its current market cap. Whisperings in the corridors of Wall Street suggest that the true value of an EXPE stock could hover around $201 per share, a tantalizing prospect for discerning investors.
Income Generation Strategy: Shorting OTM Puts in EXPE Stock
Given the benign stance of EXPE on dividend payouts, existing investors are rolling the dice by shorting out-of-the-money (OTM) puts for an additional income stream. This not only keeps their holdings unscathed but also offers a steady flow of extra income to boot.
An illustration: Cast your gaze upon the April 26 expiration horizon, a mere 24 days away. At the $120 strike price, a savvy short seller stands to rake in a bid-side income of 41 cents, translating to an immediate yield of 0.3417%.
Let’s talk numbers: Investing $12,000 in cash or margin initializes the short put maneuver. With the brokerage’s nod for cash-secured short put trades, one can ‘Sell to Open’ a put contract at $120 for April 26 expiration, reaping a reward of $41 per contract. An enterprising soul might dabble in three similar contracts, leading to a total gain of $123. Oh, the joy of a 0.34% yield!
The Promise of Plump Returns
Picture a quarterly ritual where an investor embarks on this venture four times, amassing an expected return of $492. What a delight! This amounts to a quarterly ER yield of 1.367% and an annual bounty of 5.47%. In essence, a pseudo-dividend yield sprouts, keeping the investor’s coffers warm while awaiting a stock market upswing.
No risk, no gain, they say. For the daring souls, shorting OTM puts at a closer $125 strike price could clinch a $98 income per contract. But mind the $12,500 required to secure the trade. A 0.784% yield could be yours, albeit with a strike price dwelling 5.59% beneath the current stock value.
Navigating Downside Risks
Every venture courts risks, and the downside here lurks in EXPE slipping below $125 or $120, triggering the utilization of the investor’s secured cash. An unrealized loss hangs ominously, particularly if the stock hovers below the strike price. But fret not, the breakeven price dons a comforting cloak, demanding a plunge to $119.59 before loss materializes. Plenty of breathing room there, especially when the stock’s intrinsic value screams $201.
Equipped with new shares in hand, the investor might play the covered calls game to earn more from out-of-the-money prices, helping cushion the blow of any unrealized loss. The bottom line? EXPE stands invitingly undervalued, providing space for long-term investors to stretch their legs. Waiting becomes profitable by shorting OTM puts, ensuring their shares remain unscathed even as market tides ebb and flow.
Should EXPE stumble from its pedestal, the shrewd investor rejoices, swooping in for more shares at a discounted price, all while toasting to the additional income from the short-put maneuver.
More intrigues await in the stock market realm, beckoning seekers of fortune with promises aplenty!
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
