Should Priceline Reserve A Spot In Your Portfolio?

With shares of Priceline (NASDAQ:PCLN) trading around $911, 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:

T = Trends for a Stock’s Movement

Priceline is an online travel company that offers its customers hotel room reservations at a growing number of hotels worldwide through the Booking.com, priceline.com, and Agoda brands. In the United States, the company also offers its customers reservations for car rentals, airline tickets, vacation packages, destination services, and cruises through the priceline.com brand. It offers car rental reservations worldwide through rentalcars.com.

Companies like Priceline are well-positioned to accommodate consumers with travel arrangements at competitive prices into the future. As economies grow and continue to recover, consumers worldwide are looking at travel as an excellent way to spend discretionary income.

T = Technicals on the Stock Chart are Strong

Priceline stock has been flying higher over the last several years. The stock is now trading near all-time high prices and does not show any signs of slowing down just yet. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Priceline is trading above its rising key averages which signal neutral to bullish price action in the near-term.

PCLN

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Priceline options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Priceline Options

33.56%

96%

95%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Priceline’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Priceline look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

34.58%

27.50%

27.15%

37.05%

Revenue Growth (Y-O-Y)

25.52%

20.17%

17.45%

20.32%

Earnings Reaction

3.78%

2.56%

8.29%

-17.28%

Priceline has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Priceline’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Priceline stock done relative to its peers, Expedia (NASDAQ:EXPE), TripAdvisor (NASDAQ:TRIP), Travelzoo (NASDAQ:TZOO), and sector?

Priceline

Expedia

TripAdvisor

Travelzoo

Sector

Year-to-Date Return

46.97%

3.34%

45.44%

56.82%

27.46%

Priceline has been a relative performance leader, year-to-date.

Conclusion

Priceline provides online travel as well as other accommodation arrangements in a range of countries to consumers and companies worldwide. The stock has been very hot over the last several years and is now trading near all-time high prices. Over the last four quarters, earnings and revenue figures have been on the rise which has really pleased investors in the company. Relative to its peers and sector, Priceline has been a year-to-date performance leader. Look for Priceline to continue to OUTPERFORM.

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