Lindblad Expeditions: Improved Travel Outlook Makes It A Buy (NASDAQ:LIND)

When I first wrote about the luxury tourism company Lindblad Expeditions Holdings (NASDAQ:LIND) in late November last year, my impetus was a 25% jump in its stock price during the month. It has continued to gain since. In fact, by early February, it had increased by another 27% from those levels. It has fallen fast since, though, and is now up by a relatively muted 7% from the end of November 2022.

At the time, my analysis showed that the stock had a short-term upside of 10-15%. It achieved more than that, quite likely also supported by the positive momentum for consumer discretionary stocks seen recently. Year-to-date [YTD], the S&P 500 Consumer Discretionary Index has risen by 14.4%, and more than the 8.2% gains for the overall S&P 500 (SP500).

What the market multiples say

However, can these gains continue for LIND? To assess this, here I look at its market multiples. The company is loss-making on a trailing twelve months [TTM] basis, so the price-to-earnings (P/E) ratio does not come into consideration here. The alternative is to look at price-to-sales (P/S) and in this case, the enterprise value-to-sales (EV/S) going on its relatively high debt levels. The EV/S is currently at 2.9x, unchanged from the last update. Its P/S at a little under 1.4x is also essentially unchanged.

The cruises and land-based adventures company’s attractiveness could however have changed depending on the changes in peers’ stock market performance. In its investor documents it compares itself to cruise providers like Carnival Corporation (CCL), Royal Caribbean (RCL) and Norwegian Cruise Line (NCLH), so let’s stick with those here. LIND stands out for more attractive valuations than the rest here too. Its P/S is higher than that for CCL but only just (see chart below). This indicates according to my calculations that there could be yet more upside to LIND between 15-20%.

Outlook is positive

The next financial update on the company is due only later this month, which will dictate how far these gains materialize. If its revenues continue to show strong growth for the full year 2022 and it sustains operating profits, which it reported in the last quarter, the stock can continue to rise. Within days of the last time it released earnings, the stock was up more than 18%. Going by just that, further gains seem possible.

Further, going by analyst estimates for its revenue figures, this is likely. The revenue estimate for 2022 stands at $397.8 million, which is a 170% increase from the year before. It is less than the even bigger 272% rise seen for the first nine months of 2022, but this is more likely because travel had started recovering in Q3 and Q4 last year, making for a higher base effect. As an aside, note that its massive gains are also partly due to its three recent acquisitions that are Off The Beaten Path, which provides adventure and national park tours, Classic Journeys, the culture and food tourism provider and Divine Cycling + Adventure Co, which does cycling tours.

Continued industry recovery likely

It is also helpful that there have not been any COVID-19 flare-ups reported through the winter so far. This is a good sign for travel stocks, which in the recent past and for good reason, have reacted poorly to such developments. Also, the latest travel data shows healthy recovery. According to the UN World Tourism Organization, international tourism is back to 63% of its pre-pandemic levels. Looking ahead, it says “… international tourism is set to consolidate its recovery in 2023, backed by pent-up demand, particularly from Asia and the Pacific as destinations and markets open up”. Further, it says “international tourist arrivals could reach 80% to 95% of pre-pandemic levels this year…”.

Also, Lindblad Expeditions, which attracts the active retiree, has an edge to the extent that it is a luxury tour operator. Luxury stocks are less likely to suffer during periods of an economic slowdown than the average consumer stock, as their customers are often more cushioned from the vagaries of economic conditions. And a slowdown is expected this year, if not an outright recession in some countries like the UK. However, as per the company’s estimates, one-third of its guests have a net worth of over $3 million and the median value is at $2 million. Customer loyalty to the company is also encouraging, with 40% of guests being repeat customers. This also serves to provide some visibility on its revenues, which adds to my confidence in analyst estimates.

What next?

In sum, we have a stock that is witnessing improving industry conditions. It helps that weakness in the broader economy is unlikely to impact it significantly. It also has attractive valuations both in terms of EV/S and P/S, suggesting that more upside is likely. Analysts are also positive about its revenue growth. And the past shows that investors can react fast and positively to its numbers if growth is indeed good and it stays profitable. We will know more by the end of this month, but the odds are in its favor for now.

However, it would be a mistake to think that Lindblad Expeditions is completely out of the woods. As I pointed out the last time, it still has an appreciable amount of debt and its liquidity is not the best either. But at least some of this could have changed in the past quarter as it likely continued to make progress. For investors betting on the recovery of travel stocks, this is one to consider. A holding period of at least a couple of years would be ideal to allow full recovery in travel demand to kick in. Before the pandemic kicked in, LIND showed consistent revenue growth for years and was largely profitable as well. It might take some time to get back there.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.