Priceline (PCLN) is one of those mega-momentum stocks that just won’t quit.
In the past five years, PCLN stock is up an amazing 880%, and that outperformance has slowed only slightly as Priceline stock has put up 39% returns in the past 12 months vs. a gain of just 13% for the S&P 500 in the same period.
But the dominance of Priceline in Western travel markets and a resurgence in consumer spending and business traveling are all old news.
For PCLN to push higher, it’s going to have to enter new markets — and that’s just what Priceline has done with its recent investment of $500 million in Chinese travel portal Ctrip.com (CTRP).
Here’s what the news means for PCLN stock investors:
Priceline Goes Global
A big trend for all Internet travel stocks in recent years has been the push overseas. Priceline, Expedia (EXPE), Orbitz (OWW) … all of these ventures have relied heavily on international growth — particularly in Europe.
Priceline in particular had been flying high thanks to the acquisition of Amsterdam-based Booking.com in 2005. The company saw continued growth even across the European debt crisis and kept beating earnings forecasts over the past few years.
But Europe is the past — Asia is the future. And that makes the timing perfect for Priceline to take a 10% stake in Ctrip.com.
Most importantly, the initial stake has some speculating about an outright buyout of CTRP by PCLN in the years ahead. After all, Priceline boasts about $6.7 billion in cash and investments — nearly enough to buy Ctrip outright; even after today’s 10% pop in CTRP stock, the company is valued at just about $9 billion.
PCLN Stock Is a Buy
This Chinese growth potential is a big reason to be bullish on PCLN stock.
But another hard-to-believe reason to like Priceline stock is that despite going like gangbusters over the past few years, PCLN’s forward price-to-earnings ratio is pretty reasonable at about 20.
Considering some sleepy consumer staples stocks are sitting on forward P/E’s of 17 right now, that’s a very good sign for those worried about overpaying for Priceline.
Bigger-picture, Priceline has long been committed to buybacks and continues to share its cash with shareholders via ambitious repurchase plans. In mid-2013, the company announced a plan to repurchase $450 million in PCLN stock.
Beyond that, sentiment tends to rule the roost on Wall Street these days … and you’d be hard pressed to find someone who thinks Priceline is a bad company with bad things in store for it anytime soon.
I say buy PCLN with confidence after this CTRP deal.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
