I just bought these growth shares that I think could soar

Sometimes one buys a stock only to see its price drop dramatically shortly after. That happened to some growth shares I bought last week. I bought it Tripadvisor (NASDAQ: TRIP) for the first time. From its high point last week when the company announced its full-year results, the stock has since lost about 19% of its value.

So buying it, like me, may not seem like an obvious move. But as a firm believer in long-term investment, I don’t focus on what shows in the short term.

However, over the past year, the stock has fallen 19%. Over five years it has lost almost half its value. So why did I buy it?

Market demand is booming

In short, because I think Tripadvisor has the pieces in place to help its stock rise in the coming years.

Last year’s numbers already looked good: profits grew by 65% ​​year-on-year and the company is once again profitable. But despite strong growth, profits were still 4% below 2019 levels. Net income was 84% ​​lower.

Clearly, travel demand is back in a big way. That should bode well for the profitability and profitability of Tripadvisor’s core business. But the most surprising thing about last week’s results was the increase in customer demand for experiential travel.

Tripadvisor’s Viator The division offers experiences like a scavenger hunt in Sunderland or a self-guided tour of Isambard Kingdom Brunel’s Bristolian heritage. Viator’s revenue grew 163% to nearly half a billion dollars.

Strong free cash flow

I think the trend here is good: I expect travel demand to remain strong in the long term.

Tripadvisor is well placed to take advantage of that. It has a well-known travel brand. Many offers are scalable: selling 100 self-guided audio tours of a city requires no more effort than selling just one. That should be good for profit margins.

But what’s really surprising about the results is the company’s free cash flow. While profit is an accounting term, free cash flow refers to money that is hard to get into or out of the business. One challenge I have encountered when looking for stocks to buy is that there are many businesses that have promising prospects – but are currently spending money here.

In contrast, Tripadvisor increased its free cash flow more than sixfold compared to the previous year, reaching $344m. With a market capitalization of $3.1bn, that means the company is trading at around nine times last year’s free cash flow.

It also ended the year with more than $1bn in cash and cash equivalents on the balance sheet, although it also had considerable debt.

Did I buy it?

I see a risk here. Travel demand could slow as consumers spend in a weak economy. Some new cash flows are due to non-recurring items, such as asset sales.

But overall I see TripAdvisor as a company that is benefiting from the rising demand in the travel market. It has spent spare money. I think 2023 results may be stronger than last year as travel demand continues to grow globally.

Because of this, these growth stocks seem undervalued to me. That’s why I added it to my portfolio.