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Booking Holdings: Catalysts Still in Play, But Valuation Could Mean Limited Short-Term Upside

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Booking Holdings (BKNG) stock is up nearly 50% since November but can it continue to rise on post-pandemic recovery hopes?

On one hand, shares have not only bounced back from last year’s losses, but they are now trading well above pre-outbreak levels. This leaves investors questioning whether to expect a pull-back, or possible sideways action in the near-term.

On the other hand, with the analyst community still bullish on the stock, there may be room for some additional gains. One analyst sees shares heading to $2,950 per share purely based on the re-opening of travel in Europe.

So, who’s right, and who’s wrong? As sentiment for this stock continues to lean towards the positive, higher prices in the coming months may be possible. But with a rich forward valuation, investors might consider taking a more cautious view on the stock.

BKNG Stock And The ‘Reopening Trade’

Since falling below $1,300 per share at the start of pandemic lockdowns, BKNG, together with the rest of the travel sector, has made a stunning recovery. Yet with so much “recovery anticipation” priced-in, can this company, which owns travel booking platforms including Booking.com and Priceline.com, live up to its high expectations?

According to one very bullish analyst, it’s more than possible. Bank of America’s Justin Post recently upgraded the stock from Hold to Buy and not only sees the company living up to its current expectations, but believes the best is still yet to come for BKNG stock. With travel demand set to rebound massively in the U.S., Europe, and other markets, Post sees much further upside ahead based on his $2,950 per share price target.

While there’s no denying that the post-pandemic “reopening” bodes well for Booking Holdings, the question remains whether this has already been priced-in.

Valuation concerns may be on the backburner for now but with the potential risk of it becoming a larger worry going forward, shares may have little room to appreciate through the rest of 2021.

Valuation Could Affect Future Performance

With many signs pointing to an early-stage recovery for the travel economy, it’s tough to be bearish on this sector. Hence, going short this sector right now seems too risky to consider.

But with the valuation of stocks like BKNG already reflecting the upside from this recovery, the ship has clearly sailed with regards to buying travel stocks on the “reopening” catalyst.

Trading at around 59x estimated 2021 earnings ($40.41 per share), and 25.4x estimated 2022 earnings ($93.64 per share), BKNG at $2,400 more the factors in a seamless post-Covid recovery in business and leisure travel.

In short, with high expectations priced-in, the stock could see a tremendous sell-off if the recovery falls short of expectations.

The top end of analysts’ earnings projections of $64.75 in 2021 and $123.21 in 2022 are substantially higher than the average, but with analyst sentiment mixed (as seen from the wide price target range below), it’s tough to predict whether investors on average are under-enthusiastic, over-enthusiastic, or right on the mark.

What Analysts Are Saying About BKNG Stock

According to TipRanks, BKNG comes in as a Moderate Buy based on 11 Buy, 11 Hold, and 1 Sell recommendations. The average analyst price target of $2,524,45 implies upside potential of approximately 5% from current levels over the next 12 months. Analyst price targets range from a low of $1,890 to a high of $3,000 per share. (See Booking Holdings stock analysis on TipRanks)

Bottom Line: As Uncertainty Continues, BKNG Stock May Hold Steady In The Near-Term

There’s plenty to back up the bull case for BKNG stock. The prospects of travel making a faster-than-expected recovery give the shares a good shot of hitting the high-end of analysts’ targets over the next 12 months.

Yet, with the “reopening” catalyst more than priced-in, there may not be much room left for Booking Holdings' stock to run. This may result in further sideways price action in the near-term.

Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.