Why Priceline Is Not A Momentum Stock!

  • Priceline's stock has rebounded since our previous coverage of the stock.
  • Strong financials show why Priceline is not a momentum stock.
  • Priceline is attractive at its current price and we see a huge upside.

Why Priceline is not a momentum stock

Priceline (PCLN) stock jumped by 5.2% on 27 May 2014, after the Memorial Day long weekend. The day itself might not have thrown up any news that triggered the strong up move. However, over the past couple of months, the stock had been a victim of a broad based correction in tech stocks, primarily in momentum stocks. We don’t find it surprising that the company’s stock has moved up strongly since our coverage. Here’s why Priceline is not a momentum stock and is likely to continue its upward movement.

Priceline Key Financials

Priceline has been known to deliver solid financials on a consistent basis. Priceline 2014 Q1 beat analyst estimates yet again, by a small margin on the revenue front, but by a huge margin (13%) on the earnings front. The company’s revenue grew at 26% YoY, beating its guidance as well as its average YoY growth over the last 8 quarters. Priceline also bettered its profit margins a year ago by posting operating and net profit margins of 27% and 20% respectively.

Q1 was impressive, but, shift focus to Priceline’s long term track record and things look even more impressive.






Revenue Growth






Operating Margin






Net Margin






Priceline has posted strong growth consistently over a 5 year period. As a matter of fact, revenue growth in the 3 years preceding 2009 averages 25% YoY, below its 2013 growth rate. Priceline revenue in FY 2013 was $6.79 billion! The graph below shows Priceline’s historical performance since 2005.

Priceline Revenue and Profit Trend

As far as profitability is concerned, Priceline’s margins have constantly improved, reaching their highest levels in FY 2013. Given that the company is still growing at about 29% (FY 2013), its profit margins are commendable.

Priceline Profit Margin Trend

Priceline ended Q1 2014, its latest quarter, with cash and cash equivalents of $1.28 billion.

Priceline’s future guidance is typically on the conservative side. However, its growth guidance remained strong at 19-29% Y/Y growth with a midpoint guidance of 25%. The company intent to spend on advertising is reflected in its earnings guidance, which came in below analyst estimates. That said, given that Priceline has almost always beaten analyst estimates, the conservative guidance should not concern investors too much.

Priceline Valuation

To sum up, Priceline is financially solid, and has delivered strong growth and profitability consistently to prove that it’s not a momentum stock. This stock is backed by compelling fundamentals which indicate a further upside from its current price.

At $1270, Priceline trades at Price/Sales and Price/Earnings multiples of 9.3 and 33.5. Though the stock is not cheap in absolute terms, when compared to its peers in the internet industry, Priceline’s valuations are not just attractive, but compelling given its strong financials.

Further, in our DCF valuation of Priceline in March 2014, we found the intrinsic value of the stock to be $1680 a share. We maintain our bullish stand on Priceline and continue to see a strong upside from its current price. Priceline is one of our top stock picks and has delivered a return of 60% since its inclusion in that list a year ago. Based on our stock analysis, we assign Priceline a buy rating.

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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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