A second-quarter earnings beat has Priceline Group Inc (NASDAQ:PCLN) stock approaching nine-month highs this morning. But after two years of volatility, it’s still too early to say if PCLN has broken out for good.
First, the good news: the online travel booking company posted adjusted second-quarter earnings of $13.93 per share, a 12% increase from the same quarter a year ago and well ahead of consensus analysts expectations of $12.69 per share. Sales also increased 12% year over year, though they were a tad shy of Wall Street estimates.
Improvements in the global economy certainly helped. Online bookings at Priceline’s three travel websites — Priceline.com, Kayak.com and Booking.com — were up a cumulative 19%, highlighted by a 24% increase in hotel room bookings. CEO Jeff Boyd called it a “solid start to the summer travel season.”
Investors have responded favorably to Priceline’s strong quarter, driving PCLN stock up nearly 6% before the opening bell this morning and pushing it above $1,400 for the first time all year. The stock is now firmly above its 50- and 200-day moving averages.
PCLN Stock Still Volatile
So that’s the good news. The bad news is that, despite the bottom-line beat, PCLN’s earnings actually grew at their slowest year-over-year rate since the second quarter of 2015, and sales growth actually slowed from the first quarter (16.7%). But that’s nitpicking a bit.
The real issue that gives me pause with Priceline stock has to do with the behavior of the stock itself. PCLN has been up and down for two years. Every time it appears, the stock has finally broken out for good — like when it rocketed to $1,469 last November — it comes crashing back down.
To wit: After that push to $1,469 in November, PCLN stock plummeted below $1,000 over the next two months. A month later it was back up to $1,350. As recently as late June, it was down to $1,186. Now it’s suddenly back above $1,400.
So forgive me if I’m a bit skeptical of PCLN’s latest move. The kind of wild volatility the stock has demonstrated over the last nine months — with a range of $1,469 to $973, and a beta of 1.50 — makes it hard to have a lot of confidence that PCLN can sustain any kind of momentum for longer than a month or two.
The cold, hard truth is that, prior to this morning’s post-earnings bump, PCLN stock was trading at almost the exact same share price it was a year ago.
That’s a trend, not a brief lull. It’s the kind of lackluster trend that makes me think PCLN’s best days — late 2008 through early 2014, when the stock exploded from a mere $52 per share to $1,348 — are clearly behind it. Back then, Priceline’s sales routinely grew in the 20% to 30% range, even topping 40% in 2011. The sales growth is still more than respectable, but at 12% lacks the same wow factor.
Companies can’t grow the way Priceline did during its glorious six-year run forever — and neither can their stocks. Just ask Apple Inc. (NASDAQ:AAPL). As market penetration expands, eventually growth slows and the romance phase on Wall Street ends.
PCLN Still Has Long-Term Potential
It seems the romance is over for Priceline stock, however. But that doesn’t mean PCLN still can’t be a solid long-term addition to your portfolio. It just needs to prove itself first.
If PCLN stock continues riding an earnings wave well into next week (rivaling its 52-week high), then it might finally have some staying power.
Until that happens, I’d wait to buy PCLN stock. Seven years removed from the global recession, global travel is a good place to be invested. But you don’t want to have to wait on a stock if it’s going to be up and down for another two years.
Yesterday’s earnings beat was a nice start for PCLN. Now let’s see what it does next.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
