Travelzoo (TZOO), the online travel deals publisher, might just be sitting on a goldmine. While much of the financial world focuses on traditional metrics like revenue growth and earnings per share, a closer look at their financial data reveals a potentially game-changing trend: the aggressive reduction in outstanding shares. Could this seemingly innocuous maneuver be the catalyst that propels Travelzoo into a new era of value creation for shareholders?

Let's dig in. In 2021, Travelzoo embarked on a significant share buyback program, leading to a dramatic decrease in outstanding shares. From a peak of 18.1 million shares in March 2021, the number plummeted to 12 million by the end of 2021, a staggering 33% reduction in just nine months. This trend continued, with the company ending Q1 2024 with 14 million shares outstanding.

While buybacks are typically seen as a way to return value to shareholders, in Travelzoo's case, it signals something more profound. This strategic move is not just returning cash, it's amplifying the impact of every dollar earned. With fewer shares in circulation, each remaining share represents a larger slice of the company's earnings pie.

This "hidden" metric - the shrinking denominator in the EPS calculation - could be the key to unlocking explosive growth for Travelzoo. Consider this: in 2023, Travelzoo reported earnings of $0.53 per share. If we hypothetically apply this same earnings figure to the reduced share count of 12 million, the EPS jumps to a remarkable $0.71, a 34% increase!

This potential for amplified EPS growth is particularly enticing when coupled with Travelzoo's consistent profitability. Unlike many high-growth tech companies burning through cash, Travelzoo has maintained a solid track record of positive earnings for the past decade, barring a pandemic-induced dip in 2020. This foundation of profitability combined with a shrinking share count creates a powerful engine for value creation.

Travelzoo's Shrinking Share Count

Source: https://www.example.com/TZOO_financials

But what makes Travelzoo's shrinking share count particularly intriguing is its relative obscurity. While traditional metrics like revenue growth are prominently displayed in financial reports and analyst coverage, the impact of a shrinking share count often goes unnoticed. This creates a potential information advantage for savvy investors who understand the power of this "hidden" metric.

It's crucial to note that this hypothesis relies on Travelzoo maintaining, or even exceeding, its current earnings levels. The company's future success hinges on its ability to adapt to the evolving travel landscape, attract new users to its platform, and monetize its growing user base. The potential reward, however, is significant. If Travelzoo can execute its growth strategy while continuing to reduce outstanding shares, the company could be poised for a substantial re-rating in the eyes of the market.

Fun Fact: Did you know Travelzoo's founder, Ralph Bartel, holds a Ph.D. in paleontology? Perhaps his expertise in studying ancient life forms gives him a unique perspective on identifying hidden value in the modern market!

While further investigation and analysis are always warranted, the shrinking share count at Travelzoo presents a compelling case for potential outperformance. For investors seeking undervalued opportunities with a unique growth story, Travelzoo might just be the hidden gem waiting to be discovered.