Priceline Group Inc. (NASDAQ:PCLN) is an online travel company that offers its customers hotel room reservations through Booking.com, priceline.com and Agoda brands. In the U.S., the company also offers its customers reservations for car rentals, airline tickets, vacation packages, destination services, and cruises through priceline.com. On February 20, 2014, the company reported fourth-quarter earnings of $8.85 per share, which beat the consensus analysts' estimates by $0.56. For the past year the company's stock price is up 78.47%, while the S&P 500 (NYSEARCA:SPY) has gained 20.57% in the same time frame. This is my second foray in the stock, and the last time I was in it I made 0.55% or 39.81% on an annualized basis. I've already purchased a batch of the stock in late February 2014 for my growth portfolio, and am down a whopping 10.07% on the batch due to a bad market tape for growth stocks. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if right now is a good time to purchase more of the stock for my portfolio.
The company currently trades at a trailing 12-month P/E ratio of 33.88, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 19.08 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.45), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 23.32%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 23.32%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 19.69%.
On a financial basis, the things I look for in general are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 20.1%, 32.7% and 22.8%, respectively, which are great values. In this particular instance, I will forego the dividend aspect of the financials because the stock is in my growth portfolio; and in the growth portfolio, a stock does not have to have a dividend.
The really high return on assets value (20.1%) is important because it is a measure of how profitable the company is relative to its assets, telling us how efficient a management team is at using its assets to generate earnings [for comparison purposes, Priceline has the second highest ROA behind by McGraw Hill Financial, Inc. (MHFI) which sports an ROA of 50.9% and is ahead of Moody's Corp. (NYSE:MCO) which sports an ROA of 19.8%].
The really high return on equity value (32.7%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison purposes, Priceline is fourth in the industry following McGraw Hill once again which sports an ROE of 273.7%, Moody's which has an ROE of 211.3%, and Alliance Data Systems Corporation (NYSE:ADS) which sports an ROE of 65.2%).
Looking first at the relative strength index chart [RSI] at the top, I see the stock bouncing off of oversold territory back on 27Mar14 and holding in middle-ground territory with a current value of 51.89. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing in height, indicating bullish momentum is starting. As for the stock price itself ($1231.68), I'm looking at the 50-day simple moving average (currently ($1264.87) to act as resistance and the 20-day simple moving average (currently $1204.27) to act as support for a risk/reward ratio which plays out to be -2.22% to 2.69%.
- At the beginning of this month the company went ahead and changed its name from Priceline.com to The Priceline Group. The name change came in all likelihood because the majority of the company's bookings are coming from the other sites it owns other than priceline.com itself.
This company is one of the cheapest high flying momentum names when you analyze it from a fundamental perspective. All momentum names typically have a forward P/E ratio in the 30's and 40's but Priceline's forward P/E ratio is well below that, albeit fairly valued when compared to the rest of the stock universe. Fundamentally the company is fairly priced based on future earnings estimates and based on next year's earnings growth potential. Financially, the efficiency ratios are excellent but you don't get paid to wait in this name. On a technical basis I believe the stock may have a bit more upside potential for the short-term. Due to the bullish technicals, excellent financial efficiency ratios, and excellent earnings growth prospects I will be pulling the trigger here right now.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long PCLN, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.