Priceline.com Should Be Avoided At Its Current Price

Mar.27.12 | About: Priceline Group (PCLN)

Priceline.com (NASDAQ:PCLN) has been on a vertical ascent higher ever since the credit crisis. The stock has risen nearly 15x in just 3.5 years, a nice return for shareholders. PCLN's results have been driven by all areas of the business as its room reservation business and rental cars business continue to grow at spectacular rates. PCLN continues to take market share from competitors.

However, now the company is so big that growth rates are going to decline just based on the size of the company. The company noted as such in its Q4 press release,

It expected future growth rates to decline quarter to quarter due to the sheer size of the business and that weak economic conditions in Europe have resulted in slowing growth in southern European countries and increasing cancellation rates.

All of the metrics suggest that the stock is overvalued and that's saying something. Notably, when one adjusts the forward P/E ratio for growth, then the valuation is more reasonable. Still, it ends up being relatively overvalued to its other publically traded competitors. Below is an in depth look at the valuation metrics and stock chart.

Valuation: Priceline.com's trailing 5 year valuation metrics suggest that the stock is overvalued as all of the metrics are above their respective 5 year averages. Priceline.com's current P/B ratio is 13.8 and it has averaged 7.6 over the past 5 years with a high of 14.4 and low of 3.7. Priceline.com's current P/S ratio is 8.2 and it has averaged 3.7 over the past 5 years with a high of 7.5 and low of 1.5. Priceline.com's current P/E ratio is 35.7 and it has averaged 28.9 over the past 5 years with a high of 44.7 and low of 15.6.

Price Target: The consensus price target for the analysts who follow Priceline.com is $713. That is downside of -3% from today's stock price of $735.4 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

Forward Valuation: Priceline.com is currently trading at about $735 a share with analysts expecting EPS of $38.31 next year on revenue growth of 21% for a forward P/E ratio of 19.2. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Expedia (NASDAQ:EXPE) is currently trading at about $35 a share with analysts expecting EPS of $3.16 next year on revenue growth of 9% for a forward P/E ratio of 11.2.

Orbitz Worldwide (NYSE:OWW) is currently trading at about $3 a share with analysts expecting EPS of $0.35 next year on revenue growth of 6% for a forward P/E ratio of 9.3. The mean forward P/E of Priceline.com's competitors is 10.1 which suggests that Priceline.com is overvalued relative to its publically traded competitors.

Earnings Estimates: Priceline.com has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 20 cents and 65 cents from consensus estimates or about 6.3% to 11.8% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.

Price Action: Priceline.com is up 50.2% over the past year, outperforming the S&P 500, which is up 10.1%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $592.86 and above its 200 day moving average, which sits at $522.73.

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