About Despegar.com
If you have yet to hear about or be formally introduced to Despegar.com, we’ll give you a pass.
Not because the company isn’t a prominent one or because it isn’t a good company or anything like that, but the fact that it is headquartered in Buenos Aires, Argentina and does the bulk of its business in Latin America, which makes this company a little less naturally accessible to our viewers in the United States.
Although this is the case, Despegar is still a publicly traded company and, as evidenced over the last two years, analyzing companies and their stocks is sort of our bread, butter and entire meal.
Even more, Despegar itself is classified as an online travel company (agency, really), connecting travelers to hotels and airlines and through these services, it generates its revenue through fees assessed to users and it also more than likely gets a commission from the hotels and airlines it connects its travelers with.
One can think of this company as Expedia but based in Latin America.
That being said, Despegar is up against some very stiff competition, such as the likes of Airbnb, Booking.com, Expedia, among plenty of others.
Additionally, one must reconcile with the fact that this company (and its stock for that matter) is very, very sensitive to COVID-19 and other public health emergencies and their associated restrictions, which from our perspective, is far from over, or at least its variants thereof, specifically as it relates to COVID-19.
Also, if major public health threats somehow completely subside for the foreseeable future, the current state of the national and global economy isn’t exactly conducive to consumers being readily willing and able to shell out hundreds (if not thousands) on discretionary travel expenses.
Those are just headwinds and potential yet quite real threats that should be considered before investing in Despegar’s stock (NYSE: DESP) or other travel and/or lodging-related companies and their associated stocks.
Now onto the fun stuff, here begins your full-fledged stock analysis article on Despegar.
Despegar’s stock financials
Where there’s long-term share price desolation, there might just be opportunity waiting around the corner.
This being said, Despegar’s stock might have a lot of built-in, untapped upside opportunity given that its shares have tumbled nearly 80% in value over the past five years.
Well, maybe.
Let’s see.
Despegar (NYSE: DESP) is currently trading at a share price of $7.16 and is accompanied with a market capitalization of $509.77 million, no readily listed price-to-earnings (P/E) ratio and doesn’t offer its shareholders an annual dividend at the time of this writing.
Honestly, we’re not all that surprised by these initial financial metrics.
Namely, this company’s executive team is likely laser-focused on retaining any of its earnings and putting them right back into the business in attempts to finance and fuel future growth, opting to not have earnings to display quite yet at this juncture.
This is probably also why the company’s executive team doesn’t pay out an annual dividend to its shareholder base.
We don’t blame them one bit.
Let’s now take an opportunity to check the pulse of the company’s health through its balance sheet.
Assessing the breakdown of its total assets and total liabilities, Despegar’s executive team is strapped with $822 million in total assets as well as $698 million in total liabilities.
Although we are definitely happy with the fact that the company’s total assets outweigh the cumulative value of its total liabilities, we still see Despegar’s total liabilities on the higher end, but not to a drastic extent; more like a puzzling, cautious extent.
There is a lot of investment that is needed in order to adequately compete and thrive when budding up against the aforementioned competitors but also, we don’t get from this balance sheet that the company’s executive team is full of prudent debt managers, even though we certainly could be off the mark.
Ultimately, time will tell as to whether or not this is the case, however, even if we’re not thrilled with the somewhat high amount of total liabilities relative to total assets, it’s not by any means an instant make-or-break for us when it comes to considering an investment in this company’s stock.
As it relates to the company’s income statement, Despegar’s total revenue over the past five years has been a bit disappointing.
For example, the company reported total revenue of $524 million in 2017, $531 million in 2018, $525 million in 2019 and subsequently sank like a rock to $131 million in 2020 to its latest reported revenue figure of $323 million (2021).
2020 was expected but still was considerably lower than what we had expected and candidly, a bit spooky.
Yes, we knew coming into this stock analysis article that this company will suffer when travel and consumer discretionary spending slows, however, we didn’t know the full extent of Despegar and its economic and pandemic-related sensitivities.
Its vulnerability to a fledgling, uncertain global macroeconomic environment is also evidenced in its cash flow statement, particularly through its recent net income figures.
The company’s net income in 2018 was around $19.1 million, falling to -$20.9 million the following year, proceeding to fall much, much further to almost -$143 million in 2020 as well as -$105.8 million in 2021.
Those are very rough numbers to deal with as a potential investor looking to store some investable capital into a publicly traded company.
Although they make sense and it doesn’t necessarily make Despegar a bad company, it also doesn’t excuse the fact this company faces a multitude of external variables and headwinds, with or without COVID-19 and threats thereof.
Despegar’s stock fundamentals
It can also be noted that Despegar’s trailing twelve month (TTM) net profit margin sits at -12.84%, which is fairly low for a company that was founded in 1999 and has since been in business for a somewhat extended period of time.
This can possibly be attributed to the vicious competition perhaps cutting into the company’s margins.
Nevertheless, it’s an unequivocal negative.
According to TD Ameritrade’s platform, Despegar’s TTM returns on assets and investment are in the red as well.
A negative in both senses.
Should you buy Despegar.com stock?
Massive, better capitalized competition, particularly sensitive to changes in consumer discretionary spending as well as global health emergencies.
These are some of the main reasons we want to keep our distance from this company’s stock.
Don’t get us wrong, the travel agency space is a tough industry to dominate, let alone operate in to begin with.
However, we don’t invest to sympathize, but rather we invest to tuck away some of our earnings and watch our investments grow over the long haul.
Right now, we don’t see many (if any) scenarios in which that happens by holding Despegar’s stock.
We give the company’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.