Is Priceline Still a Winner?

With shares of Priceline.com Incorporated (NASDAQ:PCLN) trading at around $700.16, is PCLN an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Priceline has made many investors very happy through the years. What about those new to the party? Have they arrived too late? Traffic on Priceline.com has improved over the past several months, but that doesn’t guarantee improved growth. Let’s take a look at some positives and negatives for Priceline before looking at some comparative numbers.

Positives:

  • Analysts love the stock: 22 Buy, 4 Hold, 0 Sell
  • Recently made strategic acquisition (Kayak)
  • Consistent gross booking improvements
  • Consistent revenue and earnings improvements on annual basis
  • Margin expansion
  • Impressive ROE (see chart below)
  • Quality debt management
  • Performing well internationally
  • Untapped growth potential internationally
  • Aggressive advertising campaign is paying off

Negatives:

  • Stock not resilient in bear markets
  • Increased customer acquisition costs
  • Increased competition (see Trends section)
  • Currency fluctuations might impact earnings

The chart below compares fundamentals for Priceline, Expedia Inc. (NASDAQ:EXPE), and Orbitz Worldwide (NYSE:OWW). Priceline has a market cap of $34.93 billion, Expedia has a market cap of $7.70 billion, and Orbitz has a market cap of $637.99 million.

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PCLN

EXPE

OWW

Trailing   P/E

25.32

44.35

N/A

Forward   P/E

15.26

13.80

15.97

Profit   Margin

26.98%

4.24%

-38.74%

ROE

42.14%

7.28%

-3378.55%

Operating   Cash Flow

$1.79 Billion

 $1.27 Billion

  $107.06 Million

Dividend   Yield

N/A

0.90%

N/A

Short   Position

N/A

11.30%

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Priceline is stronger than the industry average of 0.50.

Debt-To-Equity

Cash

Long-Term Debt

PCLN

0.36

$5.18 Billion

$1.46 Billion

EXPE

0.48

$2.09 Billion

$1.25 Billion

OWW

N/A

$130.26 Million

$440.31 Million

 

T = Technicals Are Mixed  

Priceline has been a big winner over a three-year timeframe, but the past year has been subpar.

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1 Month

Year-To-Date

1 Year

3 Year

PCLN

1.87%

12.99%

-8.02%

156.80%

EXPE

-5.29%

-7.30%

43.48%

173.80%

OWW

5.08%

120.60%

68.54%

-12.92%

 

At $700.16, Priceline is trading below its 50-day SMA, but above its 100-day SMA and 200-day SMA.

50-Day   SMA

702.02

100-Day   SMA

680.65

200-Day   SMA

650.32

 

E = Earnings Have Been Strong              

Earnings and revenue have consistently improved on an annual basis.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

1.89

2.34

3.09

4.36

5.26

Diluted   EPS ($)

3.74

9.88

10.35

20.36

27.66

 

When we look at the previous quarter on a year-over-year basis, we see improvements in revenue and earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   billions

990.77M

1.04

1.33

1.71

1.19

Diluted   EPS ($)

4.40

3.54

6.88

11.66

5.61

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Hotel occupancy rates have improved. For example, hotel vacancies were at 41 percent in 2002 and 45 percent in 2009. They’re now at 38 percent. However, this isn’t forward looking, and the online travel industry is maturing fast. Priceline and Expedia must continue to look for strategic opportunities in order to have a chance at sustainable growth, especially since Google Inc. (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) are getting involved.

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Conclusion

The economy has many headwinds that are affecting consumers, which include underemployment, increased taxes, high gas prices and high food prices. Gas prices should come down, but taxes are likely to increase. And the employment situation isn’t likely to improve – many companies are cutting employees to improve their bottom lines. With all this in mind, if the consumer weakens, then the first thing consumers will cut is travel. That fact combined with a maturing industry and increased competition makes Priceline a STAY AWAY. There is upside potential, but downside potential is more significant.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I am currently short technology, financials, the Russell 2000, and the euro.

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