Stock Pick: Soaring TripAdvisor (TRIP) may have room to fly higher

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Chart showing TripAdvisor's trailing 1-year stock performance

If you’re lucky enough to be living in one of the provinces that gets a day off this coming Monday, you may have found yourself using TripAdvisor (NASDAQ: TRIP) to get some travel recommendations. Most vacationers know that this site is full of fantastic information, but what people may not realize is that it’s also a stellar stock. Over the last 12 months, the company’s share price has climbed by 95% and a number of analysts think it can still fly higher.

On February 12, RBC Capital Markets upgraded the company to outperform and slapped a $95 12-month price target on the stock, which is currently trading at $90. Why the optimism? Because it’s getting clicks, clicks and more clicks.

The company released its Q4 results on February 11 and its $213 million revenue beat the street’s $206 million estimate. Mark Mahaney, an analyst at RBC, points out that display advertising revenues grew by 46% year-over-year, while click-based advertising grew by 17%.

Chart showing Tripadvisor revenue by product

Revenues also grew in North America, Europe, Middle East and Africa and its revenue base is becoming more diversified too. Business listings and vacation rentals now make up 17% of total revenue, he says, which is a positive sign.

Another reason for the upgrade is the company’s 2014 guidance. It expects revenue and EBITDA to grow in the mid-20% range. In 2013, revenues grew by 24% and EBITDA by only 7%.

While these are all good reason to buy in, Mahaney likes the stock because so many people use it. It has a “dramatically” large user base—it had 260 million unique visitors in Q4—and those users spend money on the site through direct hotel bookings, vacation rentals, click advertising and more.

Several other analysts share Mahaney’s view, with the median 12-month price target at $95, according to S&P Capital IQ.

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