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Well, it’s the final day of the trading week and the end of 2025’s first month. It’s been a good start to the year, with the S&P 500 up 3.2% through Jan. 30.
At the close yesterday, Rich Asplund’s Barchart report was optimistic about earnings and the economy. I’m not so sure.
Tomorrow, President Trump says the 25% tariff on Mexican and Canadian exports will go into effect. He hasn’t decided on whether oil will be exempt. If wise, Trump will leave that alone. If not, American gas prices would go up, which is the opposite of what he said he would do as president, which was to lower prices. As it is, consumers on both sides of the border will suffer under an extended trade war.
But I digress.
In today's commentary, I’ve focused on one unusually active option from Thursday trading. The Expedia Group (EXPE) option is attractive to those bullish about the company and the travel industry.
Here are three reasons I like the company’s stock and options in 2025.
Have an excellent weekend!
Why I Like Expedia
Expedia stock is a colossal underperformer. It is down over 7% in 2025 and 21% from its all-time high of $217.72 in February 2022.
However, fundamentally, it’s doing okay.
The global online travel platform’s brands include Expedia, Hotels.com, and VRBO. In Q3 2024, its gross bookings increased by 7% year over year to $27.5 billion, translating into $4.06 billion in revenue, a 3% increase over Q3 2023. On the bottom line, its adjusted net income was $809 million ($6.13 a share), 4% higher year over year. It's not spectacular, but they will do.
Analysts are lukewarm about the company. Thirty-eight cover EXPE stock, with 12 rating it a Buy, with a Hold rating from the other 26. Technically, it’s considered Overweight, but a Buy rating from just 31% of the analysts is not a ringing endorsement.
On Jan. 29, Cantor Fitzgerald, which has a Neutral rating on its stock, lowered its target price by $10 to $180, citing uncertainty in the B2C market. The firm believes that weakness at VRBO and its other consumer-facing brands could make it difficult to expand its gross margin from its already healthy 89.2%.
Financially, it’s as stable as it’s ever been. In 2020, it took on significant debt to survive the COVID-19 crisis, which shut down global travel, the lifeblood of its industry. According to S&P Global Market Intelligence, at the end of 2019, it had a net debt of $1.62 billion. A year later, it was $5.35 billion. As of Sept. 30, 2024, it was just $931 million.
From a valuation standpoint, its net debt is 0.5x EBITDA, the lowest it’s been in the past decade, suggesting by some metrics that it is an excellent value play in an expensive market.
The Pros of Travel Stocks in 2025
As I alluded to in the introduction, the effects of the Trump tariffs on consumer and business spending are still to be determined. Hence, analysts' lukewarm reception. It’s a complete unknown.
However, the stronger travel market should continue in 2025, at least for the first half.
In December, BofA analyst Justin Post upgraded EXPE stock to Buy from Neutral, increasing its price target to $221 by $34, about 30% higher than where it’s trading.
“(Expedia's) U.S. bookings, reported online travel agency nights, and revenue per available room data had been trending at low single digits in 2024 and we are seeing early signs of modest improvement, which could suggest normalizing domestic leisure travel spend into 2025,” Investor’s Business Daily reported Post’s comments.
The analyst’s most significant concern with Expedia was that its growth in consumer-focused booking nights was slowing relative to its competitors. The December data changed the analyst’s mind about 2025 growth trends for VRBO and Hotels.com in the year ahead.
It’s fair to be cautiously optimistic about 2025 travel trends.
The Put Option to Consider If Bullish
Expedia only had one unusually active option in Thursday trading: the June 20 $135 put, which had a 5.61 Vol/OI ratio.
I like the idea of selling the put for a small amount of income over the next 141 days (5 months). With a $2.73 bid price, the annualized total return is 4.1% [$2.73 bid price / $171.95 share price]. You won't get rich off the income, but it’s enough to make it worthwhile.
At this point, you might be thinking, “Why, if you’re bullish and you own the stock, why would you sell the put? Wouldn’t a collar make more sense?” Good question.
Let’s consider that strategy.
- You bought 100 shares at $171.95 (yesterday’s closing price--very hypothetical)
- You did a covered call with the June 20 $200 strike.
- You buy a July 20 $135 put rather than sell it.
In this example, you generate $7.15 in income (bid price on call) and spend $3.90 to buy the put (ask price on put), for a net credit of $3.20. This yields an annualized return of 4.0%, almost identical to selling the put.
However, my original strategy doesn’t bring into play the possibility that you might have to sell the stock at $200 if the share price hits the strike price by expiration. If you’re a 3-to-5-year-hold kind of investor, that’s too low.
Ideally, because you’re bullish, you want the call to be further out of the money than the put. So, at the very least, I would raise the strike price on the call to $210, which is 22% OTM.
In that case, your bid price is $5.10, your net credit is $1.20, and your annual return is just 1.5%. Any higher and your income would be negligible.
The strategy I’ve proposed is to provide you with a good entry point to buy more shares at $135, 21% below the cost of the original 100 shares, while generating some income for your troubles.
Either way, Expedia stock and options are worth exploring in 2025.
