Priceline shares mark 1 month above $1,000
Fueled by international growth, the company's share price and profits have soared. But how much upside does the stock have from here?
Priceline.com (PCLN) is about to celebrate its one-month anniversary as a $1,000 stock -- reached on Sept. 16 -- and from the looks of it, the after party will go on far longer than its last one.
In April 1999, Priceline shares reached $990 after a much-ballyhooed IPO sent the stock where no stock had ever gone before. Turns out, it was much ado about nothing.
Without a penny of profit to its name, it took a free-fall down to $6.36 by December 2000. Dot-com investors would have been justified in giving Priceline its last rites.
The let's-make-a-deal online travel company managed to cling to life long enough to acquire Booking.com in 2005 and Agoda.com in 2007. As they say, the rest is history.
How’s the post-$1,000-per-share era looking for Priceline? Smooth sailing so far, up a smidge to $1,021 in the past month. In the same period, shares in its not-so-stiff competitors Orbitz (OWW) and Expedia (EXPE) have fallen 12% and 8%, respectively.
Priceline holds a big edge over both companies in growth, profitability, earnings and price-to-earnings multiples. Its 30.8% rate of growth over the last three years is 2.5 times faster than Expedia and 10 times that of Orbitz, giving Priceline higher profit margins as well. Plus, compared to the average last 12 months P/E multiples (52) for the online travel industry, Priceline’s P/E of 35 makes it a much better value.
It’s almost certain that some investors along for the 60% ride year-to-date and other longer-term advocates used the climb to $1,000 as an opportunity to take profits off the table. They’d be crazy not to. The question now becomes, how much upside does Priceline have from here?
The company hasn’t posted a net loss in three years and has earned a net profit of $566 million in the past four quarters.
Mainstay is international
Priceline’s surge in prices has been largely fueled by international growth via the acquisitions of Amsterdam-based Booking.com and Bangkok-based Agoda.com. International bookings for the company jumped 44% year-over-year in the second quarter, accounting for 85% of its total bookings.
To diversify its business even more, Priceline acquired travel search engine Kayak Software Corp. for $1.8 billion in a deal that closed in May. Kayak lets travelers compare prices and make reservations for hotels, flights, cars and vacations.
According to Henry Harteveldt, a travel analyst at Hudson Crossing in San Francisco, “that’s the key to Priceline’s success. The business that’s known for naming your price has, through organic growth and acquisitions, really transformed itself.”
Next up is Priceline's third-quarter earnings report on Nov. 7. With a $54 billion market cap and steady climb to $1,000 -- as the company has warned investors -- it has to slow down sometime.
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John Stumpf acknowledges that growth has been slow, but he says he's still optimistic.
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