BKNG is a buy with low conviction; valuation is attractive (discount to S&P 500, near DCF fair value) but offset by macro headwinds and weak competitive moat concerns.

The management team at Booking Holdings was pleasantly surprised by the resilience of the travel sector despite the ongoing war in the Middle East. The management team anticipates near double-digit revenue growth in the next quarter, with profitability improving thanks to cost efficiency at a much faster rate than revenue growth.

But does this make Booking Holdings stock a buying opportunity? Booking.com has done an excellent job over the years in developing its competitive advantages and taking advantage of the overall growth of the travel sector.

Its revenues over the past twelve months have reached levels that have surpassed the record figures recorded before the outbreak of the pandemic. With an amount of $28.24 billion, which is higher than its previous peak in 2020 of $15 billion.

When I was covering the company's news at that time, I suggested that the company would benefit post-pandemic from compensating consumers for lost travel time during lockdown phases, and this proved to be true as consumers traveled and spent more while traveling than they had before the outbreak.

Booking.com operates on an asset-light business model. Remember that it benefits from directing traffic to hotels, travel companies, airlines, etc., but it does not actually own any of these assets. She does not own any physical property.

Thus, it achieves a lucrative profit. Operating profit margin of 35% over the past twelve months. It has reached the profit levels it was achieving before the outbreak. So, the company has successfully weathered this storm, hasn't it?

These were unprecedented circumstances that caused a collapse in demand for travel in 2020 and beyond. The company has done a good job of rebuilding its business and bringing it back to even better levels than before the outbreak, with revenues exceeding pre-pandemic levels by almost 50% and operating profit margins returning to pre-pandemic levels.

Given this asset-light business model, you can see the benefits in the company’s return on invested capital, which reached a record high of 61% over the past twelve months.

These are exceptional margins, and if you compare them to the company's weighted average cost of capital, you'll find that it boasts a return on invested capital to average cost of capital ratio of over 4:1.

This company is among the very best of all the companies I follow.

Of course, the downside of this asset-light business model is that you have fewer competitive advantages, and your competitive advantages are not as robust as if you had more assets to fuel your company’s sales and profits.

However, they have done a great job of leveraging the business model they use, and have put their best effort into what they have chosen, resulting in very strong returns on invested capital.

The "Booking" company's stock is trading at a forward price-to-earnings ratio of 15.8. This raises doubts for some investors, given that the company is achieving revenue growth approaching 10%, very profitable operating profit margins, and excellent returns on invested capital compared to the weighted cost of capital.

It operates a business model based on light assets. Therefore, given these characteristics, a company like this is usually traded at a higher (more premium) valuation. But Booking.com is not trading at a high valuation.

In fact, it is trading at a discount to the average of the S&P 500 index stocks, which are trading at a forward price-to-earnings ratio closer to 25 to 27. Therefore, the risks I highlighted earlier regarding the business model and competition that could step in and gain market share are likely reflected in this valuation.

I also updated my valuation of the company using discounted cash flows today, and calculated a fair value of $197. This is exactly around the market price of one hundred and ninety-five dollars, leaving room for an increase of less than one percent compared to its current market price.

But it is important to note that even in these cases where I calculate that the stock price is trading at its fair value, I still expect the stock price to generate positive returns.

The positive returns I expect the share price to generate are the cost of equity I calculated for the company, which amounts to 11.2% for Booking.com.

I last updated my rating of Booking.com as a buy opportunity with low conviction on March 30, 2026.

Today, having assessed the company as it is now, I will reiterate that buy rating with low conviction due to near-term macroeconomic headwinds and my doubts about the company’s ability to maintain its competitive advantages.

I don't see these competitive advantages as very solid. Therefore, I classify it as a buying opportunity, but I am not entirely sure. I am not very convinced by this classification.