Priceline.com: A Fabulous Growth Play

Apr. 4.12 | About: Priceline Group (PCLN)

"Study history, study history. In history lies all the secrets of statecraft."

Winston Churchill

Together with its subsidiaries Pricleline.com (NASDAQ:PCLN) operates as an online travel company that offers its customers hotel room reservations at over 210,000 hotels worldwide. It also offers its customers car reservations at roughly 4,000 locations worldwide. Customers can also purchase retail airline tickets, hotel reservations and car rental services through its name your own-price system. In addition, it also offers vacation packages that combine all the above (car rental, hotel room and flight). We like Priceline for the following reasons.

Net income exploded from $489 million in 2009 to $1.47 billion in 2011 and cash flow per share is up almost 150% from $10.23 per share in 2009 to $24.52 a share in 2011. It sports a great five-year sales growth rate of 30%.

Reasons to be bullish on Priceline.com

  • A good levered free cash flow of 974 million.
  • EBITDA has increased from $526 million in 2009 to $1.47 billion in 2011.
  • Cash flow from operating activities increased from $509 million in 2009 to $1.35 billion in 2011.
  • Annual EPS before NRI is up almost 640% from $3.53 in 2007 to $22.32 in 2011.
  • A great ROE of 52.69%.
  • A strong quarterly earnings growth rate of 66.35%.
  • A good quarterly revenue growth rate of 35.5%.
  • It has a decent quick and current ratio of 2.77 and 2.77 respectively.
  • A very good interest coverage ratio of 36.
  • A stunning five-year total return of 1200%.
  • An excellent long-term debt to equity ratio of 0.03.
  • It has a five-year return on Investment average of 32%.
  • $100K invested for 10 years would have grown to $1.33 million for an annualized ROR of 29.6%.

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Many key ratios will be covered in this article and investors would do well to get a handle on some of the more important ones which are dealt with below.

Long-term debt-to-equity ratio is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.

Operating cash flow is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt. The cash flow is what pays the bills.

The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than they are making. This situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for some time. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever. If your tolerance for risk is a low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest - Reasons To Be Bullish On Acacia Research Corporation.

Current Ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing future earnings. Ideally the company should have a ratio of 1 or higher.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa; lower ratios are generally more attractive. If a company generated $400 million in cash flow and then spent $100 million on capital expenditures, then its free flow is $300 million. If the share price is $100 and the free cash flow per share are $5, then the company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry. This gives you an idea of how the company you are interested in holds up to the other companies within the industry.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of one year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

Price to tangible book is obtained by dividing the share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to. Additional key metrics are addressed in this article - 5 Covered Writes: 2 Excellent, 2 Good And 1 Middling.

Priceline.com, Inc.

Levered Free Cash Flow: 974.69M

Growth

  1. Net income for the past three years
  2. Net Income 2009 = $489 million
  3. Net Income 2010 = $528 million
  4. Net Income 2011 = $1056 million
  1. EBITDA 12/2011 = $1477 million
  2. EBITDA 12/2010 = $850 million
  3. EBITDA 12/2009 = $526 million
  4. Net income Reported Quarterly = $226 million
  1. Total cash flow from operating activities
  2. 2009 = $509.67 million
  3. 2010 = $777.3 million
  4. 2011 = $1.35 billion
  1. Cash Flow 12/2011 = 24.52 $/share
  2. Cash Flow 12/2010 = 14.23 $/share
  3. Cash Flow 12/2009 = 10.23 $/share
  1. Annual EPS before NRI 12/2011 = 22.32
  2. Annual EPS before NRI 12/2010 = 12.25
  3. Annual EPS before NRI 12/2009 = 7.87
  4. Annual EPS before NRI 12/2008 = 5.09
  5. Annual EPS before NRI 12/2007 = 3.53

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Performance

  1. ROE = 52.69%
  2. Return on Assets = 42.14%
  3. Quarterly Earnings Growth = 66.3%
  4. Quarterly Revenue Growth = 35.5%
  1. Price to Sales = 7.72
  2. Price to Book = 13.06
  3. Price to Tangible Book = 17.99
  4. Price to Cash Flow = 27.55
  5. Price to Free Cash Flow = 27.4
  1. Current Ratio 09/2011 = 2.77
  2. Current Ratio 5 Year Average = 1.87
  3. Quick Ratio = 2.77
  4. Cash Ratio = 2.53
  5. Interest Coverage 09/2011 = 36.77
  6. Total return last 3 years = 740.7%
  7. Total return last 5 years = 1206.32%

Related companies

For investors looking for other ideas some data have been provided on four additional companies to get you started. Related companies data obtained from barchart.com.

EBay Inc. (EBAY)

Levered Free Cash Flow: $1.56 billion

Net income for the past three years

Net Income 2009 = $ 2.3 billion

Net Income 2010 = $1.8 billion

Net Income 2011 = $3.3 billion

Total cash flow from operating activities

2009 = $2.9 billion

2010 = $2.7 billion

2011 = $ 3.2billion

Gross Profit

2009 = $6.2 billion

2010 = $6.5 billion

2011 = $8.1 billion

5 year sales growth= 11.77%

Quarterly earnings growth = -254%

Quarterly revenue growth= 35%

Total return 3 year average = 169%

Current Ratio = 1.8

Quick Ratio = 1.9

Long term debt to equity= 0.09

Interest Coverage = 157.2

Netflix, Inc. (NFLX)

Levered Free Cash Flow: $1.08 billion.

Net income for the past three years

Net Income 2009 = $ 115.8 million

Net Income 2010 = $160 million

Net Income 2011 = $226 million

Total cash flow from operating activities

2009 = $ 325 million

2010 = $276 million

2011 = $317 million

Gross Profit

2009 = $590.9 million

2010 = $805.2 million

2011 = $1.16 billion

5 year sales growth = 24.95

Quarterly earnings growth = -25.9%

Quarterly revenue growth = 46%

Total return 3 year average = 164%

Current Ratio = 0.7

Quick Ratio = 1.5

Long term debt to equity = 0.62

Interest Coverage = 19.00

Amazon.com Inc. (AMZN)

Levered Free Cash Flow: $1.53 billion.

Net income for the past three years

Net Income 2009 = $ 902 million

Net Income 2010 = $1.15 billion

Net Income 2011 = $631 million

Total cash flow from operating activities

2009 = $ 3.2 billion

2010 = $3.4 billion

2011 = $3.9 billion

Gross Profit

2009 = $5.5 billion

2010 = $7.6 billion

2011 = $10.7 billion

5 year sales growth= 34%

Quarterly earnings growth= -57%

Quarterly revenue growth= 34.6%

Total return 3 year average= 389%

Current Ratio = 0.8

Quick Ratio = 1.2

Long term debt to equity= 0.18

Interest Coverage = 15.20

IAC/InterActiveCorp. (IACI)

Levered Free Cash Flow: $ 379 million.

Net income for the past three years

Net Income 2009 = $ - 978.8 million

Net Income 2010 = $ 99.3 million

Net Income 2011 = $ 174.2 million

Total cash flow from operating activities

2009 = $ 348.5 million

2010 = $ 340.7 million

2011 = $372.3 million

Gross Profit

2009 = $916.8 million

2010 = $1.04 billion

2011 = $1.29 billion

5 year sales growth = -24%

Quarterly earnings growth = - 43.9%

Quarterly revenue growth = 32%

Total return 3 year average = 214%

Current Ratio = 2.00

Quick Ratio = 2.2

Long term debt to equity= 0.05

Interest Coverage = 32.60

Conclusion

The markets are still extremely overbought and rising on low volume. Investors would do well to wait for a strong pullback before committing large sums of new money to this market. Investors can sell covered calls, or if you are bullish on the stock naked puts to open up additional streams of income.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

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

Additional disclosure: EPS, EPS surprise, broker recommendations and price and consensus charts sourced from zacks.com. A significant portion of the historic data was obtained from zacks.com. Consensus estimate analysis table sourced from reuters.com. Free cash flow yield, income from cont operations and revenue growth sourced from Ycharts.com.