We recently published a list of 7 Cheap Travel Stocks to Buy According to Analysts. In this article, we are going to take a look at where Despegar.com, Corp. (NYSE:DESP) stands against the other cheap travel stocks to buy according to analysts.

Travel continues to roar back after the COVID-19 pandemic devasted the industry. An increase in regional trips, newly emerging travelers, and new destinations continue to power steady spending. McKinsey believes that domestic travel should grow by 3% annually and touch 19 billion lodging nights per year by 2030. Over a similar time frame, international travel is expected to ramp up to the historical average of 9 billion nights. Travel spending should follow a similar trajectory, with an expected $8.6 trillion in traveler outlays in 2024. This represents ~9% of this year’s global GDP.

Thanks to economic stability, pent-up demand, and recovery momentum, the spending should outpace $2 trillion by 2028 according to the GBTA Business Travel Index Report.

Trends in the Business Travel Industry

As per GBTA, the business travel industry remains resilient as the sector left the global pandemic behind and continues to move to a new era of post-pandemic stabilization. For 2024, the global business travel spending is expected to touch $1.48 trillion by year-end, an increase on 2019 spending which was a previous record at $1.43 trillion. Many top and well-established business travel markets globally have returned to or are close to pre-pandemic levels. This should reinforce the momentum of the recovery and boost spending.

Recovery in business travel varies by region. Asia Pacific was tagged as the fastest-growing region in 2023 (at 36%), followed by Western Europe (coming at 33%) and North America (at 25%). The bounce back in recovery in 2023 was led by the US, Middle East and Africa, and Latin America. They all achieved 100% or more as compared to the 2019 spending numbers. For 2024, China and the US should continue to lead as the top 2 markets, respectively, when it comes to business travel spending.

Notably, the potential upside impacts for the broader business travel industry are economic stability, technological advancements, mainly in AI, and better-than-expected economic growth in critical markets such as the US and India. TravelTech Show stated that a total of 100 travel and travel technology company representatives participated in the survey, carried out in April this year. Upon asking how they plan to invest over the upcoming year, ~56% pointed to AI as compared with ~32% of representatives planning to spend on booking and reservation systems. However, ~20% of representatives are expecting to invest in mobile and apps.

How Artificial Intelligence Redefines the Travel Industry

As per Oracle, the travel and tourism sector is expected to reach $8.6 trillion by 2025​​. This growth has a strong contribution from technology, with AI playing a critical role in this trend. AI continues to revolutionize the hotel experience by providing tailored services keeping in view the guest’s interests. Predictive analytics powered by AI remains essential in decision-making for a hotel. AI is expected to predict demand and calculate prices after considering mountains of data.

Apart from focusing on innovation to enhance the patent portfolios, travel & tourism companies continue to make strategic investments in AI. These investments are targeted to secure lucrative deals with partners, which will help position themselves as the frontrunner in industry advancements.

In Q2 2024, the number of AI-related deals in this industry went up by 75% as compared with Q2 2023, reported Hotelmanagement-network.com. On a quarterly basis, there was a ~600% rise in the number of deals in Q2 2024 as compared with the previous quarter. The US continues to top the list in AI adoption in the travel & tourism industry, possessing the highest number of AI-related patents, jobs, and deals. However, China, the UK, the Netherlands, and Mexico all have maintained significant positions in AI adoption in the travel & tourism industry.

As per Precedence Research, the global generative AI in travel market size has been pegged at US$632.18 million in 2022, which should touch around US$3.58 billion by 2032. This exhibits a CAGR of ~18.94% between 2023 and 2032. Generative AI is expected to provide the best options for travel mediums like air travel, rail travel, or several other sources of travel together with accommodation services after considering consumers’ requirements.

Our methodology

To list the 7 Cheap Travel Stocks to Buy According to Analysts, we conducted extensive research and used the Finviz screener and online rankings. After getting an initial list of 20 stocks, we narrowed down on the stocks that were trading lower than the forward earnings multiple of ~23.65x (since the broader market trades at a forward multiple of ~23.65, as per WSJ). Finally, we ranked the stocks according to their potential upside, as of September 27. We have also added the hedge fund sentiment around each stock, as of Q2 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A business person typing on a laptop in a hotel lobby emphasizing the comfort and sophistication of the company's travel offerings.

Despegar.com, Corp. (NYSE:DESP)

Average Upside Potential: 33.75%

Forward P/E as of September 27: 12.44x

Number of Hedge Fund Holdings: 24

Despegar.com, Corp. (NYSE:DESP) is an online travel company, offering a range of travel and travel-related products to leisure and corporate travelers.

Despegar.com, Corp. (NYSE:DESP)’s strategic focus on high-margin package sales and non-air revenues should continue to drive growth in the upcoming quarters. While the expansion of loyalty programs and mobile app usage should as growth drivers, Despegar.com, Corp. (NYSE:DESP) is expected to be aided by strong demand in Brazil and Mexico. The cost efficiencies in various business areas might help in the EBITDA growth.

As a result of cost reductions and AI utilization, Despegar.com, Corp. (NYSE:DESP) expects that gross margin expansion will continue. The H2 2024 should generate stronger cash flow, with Q4 2024 being a significant quarter. The company plans to capitalize on technological advancements and strategic partnerships. The recent divestiture of its destination management company, BDExperience, to World2Meet, demonstrates a strategic shift. It enables Despegar.com, Corp. (NYSE:DESP) to focus on its core online travel operations and expand its reach in the Latin American market.

The company maintains its focus on investing in B2B and white-label offerings, entering partnerships with global ride-hailing apps, retailers such as Elektra, and financial institutions like Scotiabank. Market experts believe that these alliances should drive additional growth and market penetration. Despegar.com, Corp. (NYSE:DESP)’s focus on non-air revenue, like travel packages and hotel bookings, is resulting in higher take rates and margins.

Cantor Fitzgerald reaffirmed an “Overweight” rating, setting a $17.00 price objective on 16^th August.

Overall DESP ranks 2nd on our list of cheap travel stocks to buy according to analysts. While we acknowledge the potential of DESP as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than DESP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.