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 offNegatives:
Stock not resilient in bear markets Increased customer acquisition costs Increased competition (see Trends section) Currency fluctuations might impact earningsThe 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.
| 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.
| 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.
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.
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