Could the success of reopening trade come at a cost?
Bank of America analysts focused this issue on Monday on a note updating Booking Holdings and downgrading Pinterest and Snap, citing tidal changes on the front of interest rates that could put a stop to valuations of permanence shares in house.
“This is not a call to which Snap or Pinterest will lose estimates,” the note said. “This is a call for actions to be limited to the interval and we have better ideas for reopening.”
Booking Holdings ended trading at almost 2.5% on Monday, down its all-time high on Wednesday. Pinterest fell about 1%. Snap lost less than half of the 1%.
“We’re … optimistic about reopening trade, but I guess we wouldn’t agree with the report that we don’t think it’s at the expense of some of these fastest-growing companies,” he told CNBC in the Appenheimer technical analyst Ari Wald “Trading Nation” Monday.
Instead, it is likely to come at the expense of sectors with higher volatility and dividend payments, leaving Pinterest and Snap as the long-term winners, he said.
As for Booking Holdings, “it has been mostly operating in a very wide range, apart from this Covid collapse, between about $ 1,600 and $ 2,200 for much of the last four years,” Wald said.
“Now, a year after the significant market downturn, which was entering this second year of the bullish market, we see more stocks, including the reserve, starting to explode, surpassing the top of that range,” he said. “It can be considered more positive than not, as long as that breakout stays at $ 2,200 in support.”
The reservation closed Monday at $ 2,231.89.
Challenges continue on both sides of the Bank of America call despite improved estimates around the reopening, Chantico Global founder and CEO Gina Sanchez said in the same interview.
“About 20% of trips are business-related and 80% are leisure. The reservation has about the same percentages in its revenue,” he said. “If you assume that your entire revenue base will experience this kind of increase in 2021 and 2022, Booking really seems cheap. But if you assume that 20% of your revenue portfolio will be left behind, it will actually be quite valued “.
Pinterest and Snap destinations are likely to depend on the investor landscape, said Sanchez, also a market strategist at Lido Advisors.
“The biggest challenge there is … it really comes with their profitability and whether or not they can really get profitability,” he said. “The effect of the ointment is that interest rates go up. And as interest rates go up, investors really weigh in on the valuations and I think the fundamentals come into play.”
While Sanchez anticipated that investors would favor “growth at a reasonable price rather than pure value,” high-growth companies will still have to prove themselves, he said.
“There has to be some growth, but I actually think profitability is going to be important, and so I agree with Bank of America,” he said.
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