Travelzoo, Inc. (NASDAQ:TZOO)

TMF1000 (99.81) Submitted: 1/30/2012 2:24:59 PM : Start Price: $26.70 TZOO Score: -13.19

My first attempt to put TZOO on Caps didn't fare so well. Sales were growing rapidly, but that has slowed. The PE was way too high once sales started to slow. So I ended my Caps for TZOO at a big loss.

I am reupping today because at a price of $26.83. I think this better reflects their value. The PE on an adjusted earnings is 25.31. I don't think that is too bad considering they are now reporting accelerated growth.

Conclusion:

Its always disappointing when the price of a stock crashes. And in the case of TZOO, it was probably more of a valuation issue than any other reason. Also, GAAP earnings of $0.20 for the full year may have scared people, but the reason it is so low is because of tax settlement payment to the state of Delaware. It costs them $0.86 for the quarter crushing the first quarter earnings and full year earnings. That was a one-time event and needed to be removed from TTM earnings.

The Company said non-gaap earnings was a $1.42 and that is my figure too if we make no further adjustments, but I feel we have to make a $600,000 tax benefit adjustment for the fourth quarter. I am comfortable with my $1.06 earnings until I read the 10k.

At $1.06, the PE is 25.30. I may have over adjusted earnings, but I prefer to be a bit more conservative. Analysts expect them to make $1.64 in 2012 and $1.93 in 2013, but I don’t know whether they are using their own version of GAAP/non-GAAP earnings, so these estimates may not mean very much.

The last quarter did show revenues up 23.4% and that is accelerated growth from the previous year. Last year, fourth quarter revenues grew 19.7%. The fourth quarter tends to be a weaker quarter for them, so the next quarter should be very interesting as it should be stronger.

I own it at higher prices, but I feel the present price now reflects good value. They may not have deserved selling at $103, but I think the price has been overly punished. They are a small cap company and they wouldn’t need much growth next year to justify today’s price. If they can grow earnings, from my adjusted $1.06 by 20% for the next two years, I think the price is cheap. The earnings would be $1.53, the forward PE 17.65. They are growing sales faster than 20%. I may have been too conservative adjusting for earnings and their growth in Europe looks very promising. They have other parts of the world in which to expand too.

The low for first quarter was $20.68. The adjuste PE is 19.51. That I think would be an amazing price, if it fell to that point again. But I doubt if it will so, I am placing it on my caps today. I will be looking for that value point in the future for my own portfolio purchases.