Is Priceline's High Price Justified?

Feb. 3.12 | About: The Priceline (PCLN)

Priceline (NASDAQ:PCLN) is an online company where people can reserve a hotel room, a car rental or a plane ticket among other things. The company went public in 1999, during the bubble and its share price even saw $974 at one point during the bubble. Once the bubble burst, the company's stock price crashed very quickly and at one point it was trading for as low as $7 a share. Since 2009, the company's stock price is back to three digits and currently it trades at $534, giving the company a market cap of $26.58 billion dollars. I personally don't think Priceline deserves to trade for as high as it trades for. The company's current organic growth does not justify its share price growth.

For example in the last 10 years, the company's book value posted an impressive growth of 1300% from $167 million to $2.39 billion. This may sound great, however the company's stock price increased by 11,000% during the same period.

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Similarly, the company's revenue grew from $261 million to $1.45 billion in the last decade. While the growth may look impressive, it still falls far behind the growth in the stock price.

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The company's cash flow grew faster than its book value and revenue over the last 10 years, however it still falls below the growth in the company's stock price.

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The company currently holds cash and equivalents worth of $421 million. Exactly a decade ago, the company held cash and equivalents worth $92 million. The growth of the company's cash holdings does not happen as fast as its share price grows.

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Conclusion: I believe that Priceline is overpriced by a large margin. The company continues to grow, however many years of future growth seem already to be baked into the stock price. Priceline might be a good short selling target in the coming months.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.