Expedia Group (NASDAQ:EXPE) stock holds potential for significant appreciation and appeals to value investors, given its robust free cash flow. Additionally, short-put plays offer an avenue for long investors to generate extra income.
Fundamental Analysis
A recent GuruFocus article titled “Expedia Group Looks Like a Bargain” outlines the compelling case for Expedia’s undervaluation. The company is experiencing strong revenue growth and an uptick in bookings, with optimistic projections for the future. As a result, Expedia is generating substantial free cash flow, a trend expected to continue as capital expenditure declines. Projections suggest a considerable increase in free cash flow for 2024 and 2025, potentially valuing Expedia at $27.4 billion, over 50% higher than its current market cap. Short-put plays could yield further income for investors.
Shorting OTM Puts
Given Expedia’s non-payment of dividends, investors can generate income by shorting out-of-the-money (OTM) puts. This strategy allows them to retain their existing holdings while earning additional income. For instance, selling puts with a $120 strike price for an April 26 expiration provides an immediate yield of 0.3417%. Investors secure the trade with cash or margin and receive income from the short sale.
Expected Returns
Executing this strategy multiple times in a quarter can yield significant returns, offering an annual return of 5.47%. While shorting nearer strike prices entails higher income potential, it also involves increased risk. However, the breakeven price provides a buffer, allowing investors room for market fluctuations.
Risk Mitigation
The primary risk lies in the stock falling below the strike price, resulting in the investor purchasing shares at a potentially lower price. However, this scenario provides an opportunity for additional income through covered calls, mitigating losses. Overall, Expedia appears undervalued, offering long-term investors the chance to profit while awaiting potential stock appreciation.
Conclusion
Expedia stock presents opportunities for value investors and yield-seeking strategies through short-put plays. This approach allows investors to generate income while retaining their holdings and potentially acquiring more shares at lower prices in a market downturn.
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Author Faith Yakubu 
