Priceline Valuation Videograph

  • Priceline's stock is still down by about 10% from its 52 week high.
  • Priceline has a solid track record of revenue growth and profitability.
  • Priceline is attractive at its current valuations with a 35% potential upside.

Apart from being our favourite stock in the travel sector, Priceline (NASDAQ:PCLN) is also one of our top stock picks among internet companies. Since we added it to our list of top picks in May 2013, the stock has returned over 55%. In spite of being a fundamentally solid company, Priceline has been a victim of the broad based correction in internet stocks. After hitting a 52 week peak of $1378 a share in March 2014, the stock fell by close to 20% before recovering to its current levels. At its current stock price of $1243 a share, we think Priceline trades at attractive valuations given its impeccable track record of revenue growth and profitability. Here’s why we like Priceline.

Priceline Revenue Growth & Profitability

Priceline has maintained an excellent track record of revenue growth over the years. Over the last 5 years, it has sustained a Compounded Annual revenue Growth Rate (CAGR) of 28.9%. Growth has slowed marginally, but remains healthy at a CAGR of 26.6% over the last 3 years. Priceline also leads its peers like Expedia (NASDAQ:EXPE) and TripAdvisor (NASDAQ:TRIP) in terms of revenue growth.

What’s impressive is that Priceline’s consistent revenue growth has not come at the cost of profitability. The company’s operating and profit margins have been healthy and expanding. Priceline registered solid operating and net profit margins of 36% and 28% respectively in 2013. In spite of growing faster than its peers, in terms of profitability again, Priceline is ahead of the competition.

Priceline ended Q1 2014 with cash and cash equivalents of $1.28 billion.

Priceline Market Share and Drivers of Future Growth

Priceline accounts for about 16% market share in the US where Expedia is a dominant player. However, Priceline has grabbed the lion’s share of the market in Europe with the acquisition of the fast growing in 2005, a strategic acquisition that has proved to be a great move.

Priceline has also acquired earlier this a year, a move which is expected to help the former close the gap with Expedia in the US market., will add value to Priceline with its meta-search platform. Further, the company’s expertise in mobile platforms should help Priceline build a stronger mobile presence. In June 2014, Priceline acquired which offers marketing services to hotels, helps bring them online by developing their websites and provides other cloud based services to help them manage and optimize their operations. This again is a good fit for Priceline’s business model.

More recently, Priceline also acquired OpenTable (NASDAQ:OPEN), an online restaurant reservation service which will make Priceline’s gamut of services more comprehensive. So far, Priceline’s acquisitions have worked well for the company, be it or (2007) which has helped Priceline in the Asian markets.

Priceline’s global presence reduces the risk of dependency on a particular geography. Given the sensitivity of the travel industry to the macro-economic environment, geographical diversification is definitely a positive.

Priceline Valuation

In spite of its superior growth and profitability among peers, Priceline has an attractive Price/Earnings valuation of 32.

However, one must note that Priceline trades at a Price/Sales multiple of 9.0, which is higher than the average of P/S multiple enjoyed by its peers. This implies that a sizeable slippage in growth or profitability, can hurt the stock’s valuations. That said, Priceline has historically beaten analyst estimates on a consistent basis with its Q1 performance beating revenue estimates by 13%.

Our DCF valuation of Priceline indicates a 35% potential upside from its current stock price, with a target price of $1680 a share. We assign Priceline stock a buy rating, based on our analysis of the company.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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