TripAdvisor (TRIP) may be on a good path to turn the business around. The company has been diversifying away from being dependent on income from hotel business during the last three years. At first, the diversification brought a painful period for shareholders as the transition brought down the profitability. In fact, the operating margin declined from 39% in 2012 to 11% in 2016. However, the non-hotel stream of income is turning positive after the years of negative contribution and, therefore, may suggest that operating margin is reaching a bottom. As the operating margin is set to expand, the equity should appreciate. In addition, the company is in a rapidly growing industry, is free cash-flow positive, does have a healthy balance sheet, and has been rewarding investors through share buybacks. Therefore, TripAdvisor resembles a perfect setup for a turnaround. In this article, I discuss the fundamental point of view but look at technicals as well since the company has been in a three-year downtrend.
Negative momentum
The shares have been having a bearish momentum since 2014. They reached a peak of $111.24 in June 2014. And, in June this year, they made a new low of $35.34. Technically, the shares are in a three-year downtrend, and to change the trajectory, the business will need to bring better results.
