Travel Stocks to Book: Priceline (PCLN)
Conventional wisdom suggests that a stock that has gained 64% in the past year is probably well settled in overbought territory. Priceline’s (PCLN) price-to-earnings ratio of 1.2 and its forward P/E of 18.5 might suggest the same thing.
Still, PCLN still might be more right-priced than not, especially after Thursday’s post-earnings slip. Priceline beat earnings and revenue expectations for the quarter, but outlook came in light, prompting the sell-off. Still, gross booking surged by 34.2% year-over-year, which was well better than expectations.
PCLN remains a growth play in a sector that has seen solid demand growth over the past three quarters, driven by two key factors.
- Priceline is cashing in on its so-called “agency” business model through Booking.com — an attractive strategy in Europe that delivered more than 40% growth in gross bookings in 2013. This is helping PCLN thwart competition from Expedia’s so-called “opaque” deals site, Hotwire.com, particularly in the U.S.
- Second, PCLN’s business model is wildly profitable — its operating margin is more than 35% and shows little sign of tightening, particularly given Booking.com’s growing opportunities in Europe.