Ticking Time Bombs: 3 Travel Stocks to Dump Before the Damage Is Done

Stocks to sell

Travel is once again booming in the United States.

A whopping 90% of Americans traveled in the last three months, according to a recent survey. Of that amount, 73% stayed in a hotel and 67% took a domestic flight. Travel over the Memorial Day and Labor Day holidays reached record levels this year.

Yet despite the rise in post-pandemic travel, not every company in the industry is benefitting. Many companies continue to struggle coming out of the Covid-19 crisis. High debt levels, labor unrest, and difficulty wooing customers back continues to plague the sector. This is in spite of Americans once again boarding airplanes and checking into resorts.

Investors beware. Dump these travel stocks before the damage is done.

Airbnb (ABNB)

Source: AlesiaKan / Shutterstock

Homestay and rental company Airbnb (NASDAQ:ABNB) reported better-than-expected financial results for this year’s second quarter. The company announced earnings per share (EPS) of 98 cents compared to Wall Street’s expectation of 78 cents.

Revenue in Q2 totaled $2.48 billion versus $2.42 billion that was forecast by analysts who track the company’s progress. However, while the headline numbers were good, Airbnb also shared a dismal report. The number of nights and experiences booked on its platform weakened during the period.

Specifically, Airbnb revealed that it had 115.1 million nights and experiences booked on its platform during Q2, up nearly 11% from a year earlier. But this is less than the 117.6 million forecast by analysts.

Additionally, gross booking value per night came in at $166.01 during Q2, up only 1% from a year ago. The result was that ABNB stock fell 6% immediately after the Q2 print went public. Analysts say the bookings slowdown is a major red flag for the company moving forward and could portend bigger problems at Airbnb.

Although ABNB stock is up 21% over the last 12 months, it’s trading 4% below its IPO in December 2020.

United Airlines (UAL)

Source: Shutterstock

United Airlines (NASDAQ:UAL) received a fair amount of praise for reaching a new labor agreement with its 16,000 pilots this past July. However, the collective agreement signed with the Air Line Pilots Association came at a steep price – literally.

The pilots’ union managed to secure a 40.2% pay increase over four years as part of a new deal with United. By some estimates, the pay increase will cost UAL as much as $10 billion over the life of the new contract. This fact left many analysts shaking their heads in disbelief.

The agreement reached by United’s pilots is inspiring to other unions. The United Auto Workers (UAW) is demanding 40% pay raises from the Detroit automakers. Yet, the deal could put the airline carrier in financial straits just as it was emerging from the ravages of Covid-19.

United exited the pandemic with $30 billion of debt. It’s managed to pare that down to $26.85 billion but still has a heavy load to carry. The deal with the pilots, which also includes improvements to overtime pay and holiday pay, could strain the company‘s finances further.

UAL stock is up 23% over the last 12 months but is currently trading 53% lower than five years ago.

Expedia (EXPE)

Source: NYC Russ / Shutterstock.com

Shares of Expedia (NASDAQ:EXPE) fell 15% after the company’s second quarter financial results were released. The plunge was due to the company coming up short on its bookings and revenue.

The online travel company managed to report record revenue of $3.36 billion in Q2. But that figure still fell short. Wall Street’s lofty forecasts expected the company to fully capitalize on the post-pandemic travel boom. Also, gross bookings were disappointing, rising 9% year over year (YOY) to $27.3 billion, below analysts’ call for $28.3 billion.

Expedia reported earnings per share (EPS) of $2.89, up 48% from a year ago and ahead of analyst estimates of $2.35. And, lodging bookings reached a record $19.2 billion. However, trouble signs emerged as Q2 lodging bookings came in lower than in this year’s first quarter.

In addition, Q3 guidance came in below expectations, leading some analysts to predict a softening for Expedia. EXPE stock is up 5% over the last 12 months but is down nearly 25% from five years ago. Given the sharp rise in travel demand this year, the company should be performing better.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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