Despegar.com Is Still Waiting to Take Off

Sometimes even a solid earnings beat isn't enough to stir up interest in one of last year's forgotten debutantes. Argentina's Despegar.com (NYSE: DESP) posted better-than-expected financial results on Thursday morning, but its stock continues to meander near last year's IPO price.

The Latin America online travel specialist saw its revenue rise 22% to $148.6 million for its first quarter, fueled by a 21% uptick in gross bookings. Net income clocked in at $16.4 million, or $0.24 a share, up 35% compared to the prior year's results on a pro forma basis. It was a solid beat on both ends of the income statement, as analysts were targeting a profit of just $0.21 a share on $143.5 million in revenue.

Wall Street didn't care. The stock opened marginally higher following the healthy earnings report, only to find itself in negative territory a few hours into the trading day. Despegar.com seems destined to be the Rodney Dangerfield of online travel stocks. It gets no respect.

Lost in translation

Despegar.com has now posted better-than-expected earnings in each of its first three quarters as a public company, but that hasn't been enough to sway investors. The stock is barely trading above its mid-September IPO price of $26.

The dot-com speedster seems to be doing things right. Most of its growth is coming from hotels, packages, and other travel products that generate higher revenue than the cutthroat air ticketing niche. Airlines don't have the same kind of commissions-disbursing flexibility as travel package providers. A 7% increase in air ticketing revenue was lifted higher by a 35% surge everywhere else for the first quarter.

There isn't a lot of Wall Street coverage on Despegar.com, but the analysts that have stepped up have been generally positive on the off-the-radar online travel play. KeyBanc's Brad Erickson called the company "undiscovered" in a bullish analyst note two months ago. He set a $40 price target at the time, arguing that Despegar.com is just starting to grow its margin-expanding travel package business. He also saw upside to consensus analyst estimates and the stock. He was right about upside to estimates, given this morning's beat, and we're definitely seeing the package business start to take off. However, the stock finds itself trading more than 10% lower than when Erickson issued that note, giving it that much more upside from current levels on the way to his $40 price goal.

Back in January, it was UBS analyst Eric Sheridan upgrading the stock. He was initially neutral on the stock at the time of its IPO. Sheridan's bullish thesis centers around the improving global economy and favorable internet-penetration trends in Argentina and Brazil, positions that remain largely intact. His price target of $36 also offers a healthy ceiling from where the stock is now trading.

Despegar.com hit the market lacking years of spectacular growth like some of the larger global portals. Revenue actually declined 3% in 2016. However, with what are now five consecutive quarters of top-line growth north of 20%, there should be some more air -- respect, if you will -- between the IPO runway and where the company is now.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.