Priceline’s (PCLN) TV commercials have been some of the most fun — and most memorable — advertisements that television watchers have seen recently, perhaps second only to Progressive Insurance’s TV spots featuring the lovable “Flo.” William Shatner has been perfect as the Priceline “Negotiator,” and newcomer Kaley Cuoco has seamlessly stepped right in as the Negotiator’s daughter.

Entertaining television ads don’t inherently make for a great company, though, nor for a great investment. So should you buy Priceline stock for its actual merits? To see, we’ll take a look at the stock’s pros and cons:

But First, for Perspective …

When Priceline announced Q2’s earnings late last week, not only did year-over-year earnings grow for about the umpteenth time in a row, but the company also posted its 14th straight earnings beat. The analyst community was looking for $9.36, vs. Q2 2012’s $7.85. What the company turned in was an impressive $9.70, up 23% from the year-ago figure.

Last quarter’s impressive results were just a slice of what’s become a long string of success for the company. Indeed, the results have been so good for so long, it wouldn’t be off-base to start wondering if — or when — the other shoe is going to drop.

With that as the backdrop, the camps sitting on either side of the Priceline stock debate each have three key arguments to make their bullish or bearish case:

Pros

• Booming Growth: Priceline is a growth machine: The company is into its tenth straight year of rising revenue, which has grown from a mere $914 million in 2004 to a whopping $5.26 billion in 2012. Income hasn’t grown each and every year since then, but it’s gotten close to doing it. Better still, earnings beats have become the norm.
• Open Wallet: Priceline isn’t afraid to spend money to build the company. Granted, some would argue it spent too much on promotions last quarter, with online advertising up 47% in the second quarter, and offline ad spending up 223%. That would be inappropriate for most companies, but when the advertising is as effective as Priceline’s has been, it’s money well spent.
• Valuation: Some would argue that a trailing P/E of 31.3 for PCLN is simply too expensive. A few of those critics would even find the forward-looking P/E of 19.3 unpalatable. Truth be told, though, with a 12-month earnings growth rate near 24%, shares are priced right around the market’s norm for a company growing that well. In fact, given Priceline stock’s stunningly consistent big-time growth, one could argue that the stock deserves a little more of a premium valuation.

Cons

• Low Bar to Entry: New competition pops up all the time, including companies like Travelocity and Orbitz (OWW). Although Priceline can leverage its existing relationships and name, there’s little to no cost to launch an e-commerce site any longer. And although PCLNhas fended them all off so far to remain the name in travel arrangements, sooner or later, one of these competitors might find a winning formula. If so, there’s little Priceline can do about it.
• Growth Cap: Eventually, Priceline’s market dominance will leave it little room for rapid growth. With a firm grip on the United States travel market, the company is now breaking into international markets … in spades. International bookings grew by a hefty 44% in the second quarter. That’s huge, but not sustainable. Spoiled investors will need to adjust their expectations, but they might do it by adjusting the stock price lower.
• The Millennial Mark: Much ado has been made about the fact that Priceline stock is knocking on the door of a milestone price at $1,000. It’s a rarity, and it’s entirely possible the market is subconsciously bidding it up to that level just to see it happen. While it’s not inherently a flaw with the company, once (or if) the millennial mark is hit, the buzz supporting the stock’s current rally may quickly falter. Fair or rational? No. Trading reality? Yep.

Bottom Line

Yes, the red-hot growth the company has been doling out will eventually slow, but it’s likely to be years before overseas markets are fully tapped by online booking sites.

Moreover, Priceline has proven it’s more than skilled at fending off competition. It’s also proven it knows how to acquire and cultivate non-namesake sites; the company now owns Booking.com, and is doing well with it.

The stock reaching the $1,000 mark might well kick-start a dead period in the buying interest, but that won’t be a permanent condition. This is a solid, long-term growth story, and given enough time, the market always rewards reliable performers.

So should you buy Priceline stock? Yes — for now, it’s clear PCLN is still a solid buy.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.