Value Stock #3: Priceline.com (PCLN)
Now we come to Priceline.com (PCLN), maybe the best value stock of the lot.
It seems hard to believe that a few years ago, PCLN stock was trading for next to nothing. It did a reverse split, and its business took off around the same time. PCLN stock was up 80% in 2013 and is ahead another 8% this year.
PCLN is all about cash, cash, cash. It has $6.6 billion in cash and short-term investments, or about $128 per share. It has almost no capex, so free cash flow is crazy good, with about $1.7 billion in the trailing 12 months. Plus, PCLN continues to grow earnings at 20% per year.
On $51.56 in FY14 earnings, a 20x estimate gets PCLN fair value to $1,031. But I add a 20% premium for stocks with cash hoards and lots of FCF, so to me, at the effective cash-included price of $1,160, it’s still undervalued.
As a note: Priceline reports earnings after the bell Thursday.
As of this writing, Lawrence Meyers owned shares of AMZN and has sold naked puts against PCLN. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.