Priceline Group Inc (NASDAQ:PCLN) ranks among the strongest performers this year, rallying as much as 41% to an all-time high of $2,067.99 earlier this month. However, things took a turn for the worse once the company’s second-quarter results were released that day after the close. PCLN stock gapped 7% lower the following day and has struggled ever since.
Priceline’s headline numbers were strong, with adjusted earnings of $15.14 a share besting the Street’s estimate of $14.19 a share and revenue of $3.02 billion also beating the consensus at $2.99 billion.
What sent the stock tumbling the following morning was lower-than-expected guidance. Analysts had been looking for third-quarter EPS guidance of $34.42, but management projected just $32.40-$34.10.
Plus, it’s worth noting that Priceline has some tough comps ahead of it in the coming quarters. The company saw a very strong end to 2016, with nights booked growing by an average of 30% in the third and fourth quarters. For comparison, bookings grew just 16% in the just-reported second quarter.
PCLN Must Regain Investor Confidence
There’s no question that the recent weakness stings, but over the long term PCLN still has large upside potential considering its exposure to the NexGen theme of travel and experience among millennials.
The group currently spends an average of $1,200 (and growing!) on travel each year, and considering Priceline operates in more than 200 countries around the world with its big-name brands like its namesake, Kayak and OpenTable, it stands to greatly benefit from this mega-trend.
China is also an important growth region for the company, and it’s worth noting that it is invested in local travel company Ctrip.Com International Ltd (ADR) (NASDAQ:CTRP) to expand its exposure there.
At this point, I suspect the sellers are exhausted, and that means PCLN could start climbing again once buyers step back up to the plate. But they need to see the shares at a price that is once again attractive before that can happen.
Click to Enlarge For now I’m staying away, but if PCLN is able to stabilize for the next week or two I would consider buying.
The stock needs to form a base, and as you can see above it looks like it may be on its way to doing that now just above $1,840.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.