Here's My Top Growth Stock to Buy Now

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The future is a bit murky, but we can see enough to know that the global economy isn’t exactly firing on all cylinders. Inflation is declining, but remains relatively high, and the yield curve is still inverted. The U.S. — and much of the world — could still slip into a recession this year.

In short, the macro environment isn’t conducive to business growth.

Yet there are some growth stocks worth buying despite the backdrop. Online travel agent Booking Holdings (BKNG 0.57%) is one of the best of these bets right now.

Booking Holdings is in the right place at the right time

Don’t misread the message. Booking Holdings is bumping into the same economic headwinds hitting every other company. It’s just that, sometimes, an industry’s tailwind can be even stronger than those broad-based headwinds. That’s the case here.

The current tailwind is at least partially rooted in the world’s recovery from the many impacts of the COVID-19 pandemic. Between voluntary and mandatory shutdowns and travel restrictions, the International Air Transport Association (IATA) reports that air traffic fell by 60% in 2020. Now, the IATA says we’re back to about three-fourths of pre-pandemic demand, en route to what it predicts will be a little more than 90% this year and a full recovery of the business by 2024.

Leisure cruises and hotel stays are on the same rebound path. Hospitality analytics firm STR believes demand for hotel rooms will reach record levels this year, in fact, and grow beyond that in 2024.

All of it bodes well for Booking Holdings.

The other key tailwind pushing this company forward faster is rooted in a major transition that was underway well before the pandemic: the shift of the travel booking market from old-school to online.

Given how pervasive the internet has become, you might be surprised to hear that only about two-thirds of the travel industry’s revenue is driven online. The remainder is generated the old-fashioned way — on the phone, in person, and directly in contact with service providers. But that share continues to shrink.

As more and more consumers gain access to the web (including via smartphones) and recognize that better deals can be found through third-party operators, a big piece of that final third will also shift to online travel agents. That’s why IMARC Group predicts the online travel agent market will grow at an annualized clip of 11.7% through 2027, outpacing the projected industrywide annual growth rate of 8.1%.

Given that it already controls about half of the Western Hemisphere’s online travel booking market, Booking Holdings is well-positioned to capture a major share of that growth.

“One of the best ways to play the travel recovery”

This likely growth is evident in Booking Holdings’ projected results.

True, this year’s expected top-line growth of 13.3% is a far cry from the 54% growth analysts expect to see when the company releases its full-year numbers in February.

Keep it in perspective, though. Last year’s sales are being compared to a terrible 2021. The growth figures for 2023 should look weaker. The outlook is still pretty strong at 13.3%, and revenue should be able to continue growing at a similar clip for the foreseeable future. Ditto for earnings, which are expected to outgrow revenue this year and beyond. 

Despite pandemic-driven headwinds, Booking Holdings' revenue likely reached a new record in 2022... and will continue to do so.

Data source: Thomson Reuters. Chart by author.

There’s lots of value in this stock, too. Shares are priced at only 18 times this year’s expected earnings despite their recent run-up. That leaves room for more upside even before the company begins producing these projected higher numbers.

The kicker: Despite China’s firm enforcement of its zero-COVID policies through most of 2022, Booking Holdings’ business has still been growing measurably in Asia. In September, in fact, room bookings in Asia finally eclipsed their pre-pandemic levels.

Now, China has finally eased its zero-COVID policy, putting its harsh lockdowns in the rearview mirror and fully reopening for all types of business. That, according to Tigress Financial analyst Ivan Feinseth, is a “massive upside catalyst” for Booking Holdings.

In his note on the company late in December, Feinseth called Booking Holdings “one of the best ways to play the travel recovery,” noting travel’s resilience even when the economy is wobbling.

The secular tailwind wins

There are risks, to be sure. While I concur with Feinseth’s suggestion that Booking Holdings is one of the top ways to plug into the ongoing post-pandemic rebound of the travel market, a sweeping stock market sell-off or broad economic weakness could still undermine the stock. Rightly or wrongly, most stocks move in the same direction as the broad market.

From a risk-versus-reward perspective, though, there’s more potential upside here than potential downside. The stock’s recent leadership ultimately suggests that the brewing recovery of the travel market is bigger than any economic headwind on the horizon, as it’s being driven by more secular tailwinds. Chief among these is the growing number of people making travel arrangements online, and a general growing interest in travel-supplied experiences.