Does Priceline Have More Upside Potential?

With shares of Priceline.com Incorporated (NASDAQ:PCLN) trading at around $795.73, 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

On a day where the S&P dropped 1.38 percent, Priceline only dropped 0.37 percent. This is a sign of resiliency. However, this doesn't mean Priceline is bulletproof. If the market were to suffer a severe correction, there's a good chance that Priceline would suffer with it. When the market falls and personal investment gains turn into losses, discretionary income for many people quickly becomes horded. This, in turn, impacts the travel industry. All that said, nobody knows for sure what direction the market will go tomorrow, the next day, or the day after that. That being the case, many investors prefer to focus on quality companies, and Priceline is definitely a quality company. Priceline has also made highly strategic acquisitions through the years. Considering the company's strong balance sheet, there might be more acquisitions to help fuel growth in the future.

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As we all know, Priceline has had no problem with top-line growth. The bottom line has also been impressive over the years, for the most part. And, it should be noted the gross bookings have consistently improved. However, the best way to take a stab at future results is to look at online traffic. If traffic has increased for a company like Priceline, then the odds of improved results also increase. And vice versa. Below is a quick list of properties that might provide some clues. Aside from Global and U.S. ranks, performance numbers are based on the past three months.

Priceline.com

Global Rank: 779

U.S. Rank: 160

Pageviews-Per-User: Increased 1.0 percent

Time-On-Site: Increased 6.0 percent

Bounce Rate (only one pageview per visit): Increased 13 percent

 

Booking.com

Global Rank: 165

U.S. Rank: 402

Pageviews-Per-User: Decreased 2.65 percent

Time-On-Site: Increased 4.0 percent

Bounce Rate: Decreased 2.0 percent

 

Agoda.com

Global Rank: 993

Thailand Rank: 49

Pageviews-Per-User: Increased 17.50 percent

Time-On-Site: Increased 25.0 percent

Bounce Rate: Decreased 24.0 percent

 

Rentalcars.com

Global Rank: 5305

U.S. Rank: 6818

Pageviews-Per-User: Decreased 14.19 percent

Time-On-Site: Decreased 5.0 percent

Bounce Rate: Decreased 7.0 percent

The Agoda.com numbers are phenomenal. This is important because it has allowed Priceline to compete in Asia. To give readers an idea of the size of Agoda.com, it has 285,000 hotels available for booking, 7 million customers, and it's available in 37,000 cities across the world. There is also a best price guarantee, and there have been over 4 million reviews left by Agoda customers.

Below are some more directional numbers from the last quarter. These numbers are all year-over-year.

Hotel Room Nights: Increased 36.8 percent

Rental Car Days: Increased 37.5 percent

Airline Tickets: Increased 21.4 percent

Bookings: Increased 36.4 percent

Gross Margins: Increased 747 bps

Agency Business: Grew 6.5 percent

Merchant Business: Grew 43.2 percent

Priceline also recently announced the sale of $1 billion of senior unsecured notes as well as a $1 billion share buyback.

The chart below takes a look at some basic fundamentals for Priceline, Expedia Inc. (NASDAQ:EXPE), and Orbitz Worldwide (NYSE:OWW).

	PCLN	EXPE	OWW
Trailing P/E	27.61	42.85	N/A
Forward P/E	17.46	13.98	21.51
Profit Margin	26.82%	4.24%	-18.82%
ROE	42.74%	7.28%	-179.93%
Operating Cash Flow	1.79B	1.27B	184.56M
Dividend Yield	N/A	0.90%	N/A
Short Position	5.80%	8.40%	19.90%

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

T = Technicals Are Strong

Priceline has been one of the biggest winners throughout the broader market over the past three years. That’s saying a lot.

	1 Month	Year-To-Date	1 Year	3 Year
PCLN	10.03%	28.54%	29.34%	346.6%
EXPE	-6.62%	-10.15%	24.52%	217.8%
OWW	21.54%	177.9%	108.8%	56.52%

At $795.73, Priceline is trading above its averages.

50-Day SMA	754.01
200-Day SMA	695.71

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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	0.35	5.18B	1.46B
EXPE	0.48	2.09B	1.25B
OWW	0.03	219.77M	450.00M

E = Earnings Have Been Steady

Priceline usually impresses on the both top and bottom lines.

Fiscal Year	2008	2009	2010	2011	2012
Revenue ($) in millions	1,885	2,338	3,085	4,356	5,261
Diluted EPS ($)	3.98	9.88	10.35	20.63	0.00

Looking at the last quarter on a year-over-year basis, revenue and earnings have both improved. On a sequential basis, revenue improved and earnings declined.

Quarter	Mar. 31, 2012	Jun. 30, 2012	Sep. 30, 2012	Dec. 31, 2012	Mar. 31, 2013
Revenue ($) in millions	1,037.25	1,326.76	1,706.31	1,190.64	1,302.01
Diluted EPS ($)	3.54	6.88	11.66	5.63	4.76

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

Conclusion

Priceline is dealing with a few headwinds at the moment, which include exposure to Europe, regulatory challenges in Argentina, competition in Asia, and slight foreign currency impacts. However, the positives greatly outweigh the negatives with this story. As mentioned earlier, the biggest risk is steep market correction. Priceline isn’t likely to hold up well in such an environment.