There aren't a lot of shares in the NASDAQ-100 that are priced at more than $500 per share as of 3/23/2012. Only four companies belong to such a club: Intuitive Surgical Inc. (ISRG) at $533.40, Apple Inc. (AAPL) at $596.05, Google Inc. (GOOG) at $642.59, and Priceline.com Inc. (PCLN) at $714.99.
When shares carry such prices, potential investors may psychologically fear that such shares have become expensive, when in reality such prices are not necessarily an indication of market capitalization, nor an indication of cheap vs. expensive valuations.
We must admit that when we published an article on 3/12/2012, "2 stocks that can benefit from China's slowdown", identifying Priceline.com as a potential buying opportunity at its Friday closing price of $647.45 as of 3/9/2012, we also had to overcome our "sticker shock". Since then, Priceline has appreciated by 10.4% in only two weeks. As of 3/23/2012, Priceline is up 53% year-to-date, while Apple is up 47%.
Priceline.com Inc. 3-month Stock Price Chart
Source: Yahoo Finance
Other than the superficial price tag comparison between Apple and Priceline, we have no intention of comparing Apple and Priceline from an alternative investment perspective; our opinion of Apple shares has been very well established since August 15, 2011, when we published "Who will take a bite out of Apple? Anyone?", and in subsequent articles where we set a target price of $660 with potential momentum carrying it further to $750.
Has Priceline stock price become too expensive at these levels? With earnings expectations of $31.22/share for current fiscal year and $38.31 for next year, Priceline's forward P/E ratios have increased during the past two weeks from 20.75 and 16.9, respectively, to 22.9 and 18.7, respectively. Such ratios are on the expensive side.
As this week is known to be window dressing week prior to the end of the quarter, investors could take advantage by booking profits on potential gains in Priceline's stock price. During the past five years, Priceline shares averaged an increase of about 1.1% during the last 5 business days of the first quarter. Meanwhile, such an increase was even higher during the past two years, averaging about 5.5%.
Despite the potential for additional gains from a share buyback program, as well as other bullish factors relating to the online travel industry, Priceline's strong cash position and a stronger dollar, this week may be a good opportunity for investors to book profits. For those who haven't bought Priceline in the past, it may not be too late to buy its shares as investors can possibly stand on the sidelines for the time being, awaiting either a pullback, as the shares may have appreciated too fast, or a confirmation for upgraded future earnings.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours.