Volatility on Priceline.com (NASDAQ:PCLN) is not new to anyone following or trading this beta (1.2) name. The short term, just coming off of an earnings beat ((Q1 earnings) of $4.28 beat analyst estimates by $0.33), is bound to be volatile in the near term as we continue to witness the EUR/USD struggle as the Euro zone continues to sort out its economical and political issues. The guidance provided by the online travel site appears to be fairly cautious in the immediate term. The impact Europe might have on PCLN's bottom line in the future may have spooked investors to seek a better return elsewhere. PCLN saw after hours trade whipsawing between -5% & +1%, before setting into a -2% change. Priceline's USD denominated results will feel increased pressure in a weakening euro environment.
Key levels to note are the intra-day April low of $678, where it closed at $685. Next support is at $650 held in March.
Q1 gross bookings rose 44%, led by international hotel reservations. Overall domestic bookings rose 11.7%, while international bookings saw a jump of 54%. Priceline.com sees Q2 international bookings up 32%-37% and domestic bookings up 5%-10%.
Priceline.com provided its typical mix of both upbeat but cautious Q2 guidance, forecasting 18%-23% revenue growth. Wall Street sees a 26% gain to $1.394 billion. It predicted EPS of $7.20-$7.40, the midpoint below analysts' consensus of $7.38.
Fundamentally, Priceline.com remains in a "fair" financial position, in my honest opinion. Price to Sales, Price to Earnings, and Price to Book all remain at a steady level, but do show signs of representing a "rich" valuation, and continued growth would be needed to warrant a "buy" if these ratios remain.
P/S, which is at 7.3, represents the amount paid out for $1 of sales or, for a "real world" definition, is how much Wall Street values every dollar of the company's sales. This remains elevated when compared to Priceline's immediate competitors (Orbitz Worldwide, Inc (NYSE:OWW) & Expedia Inc (NASDAQ:EXPE)), on a relative basis.
P/E is currently sitting at roughly 30, which on a relative basis, is again rich compared to competitors. PCLN can get away with trading at this multiple because of the potential growth the company is projected at generating. This growth expectation was key to how Priceline.com would trade following earnings and since this was delivered with a cautious tone, we began to see the name trade off since. This could easily explain why sometimes guidance plays a much larger role in price action following earnings, despite a "beat" of that quarter's earnings expectations.
Finally, there is P/B where PCLN is at 13, which tells you how much you are paying for one dollar of net assets. It comes as no surprise that PCLN has earned a very high return on its assets, especially within the online traveling booking sector. With that said, a P/B at 13 is on the high end when compared to industry peers. Overall, without continued growth in Asia and Europe, PCLN could be perceived as trading at a rich valuation and may be setting up for a momentum pickup to the downside.
** All ratios based on figures from Q1 transcript
As expected with beta names, a technical analysis should play a large part in whether you get involved to the long side, the short side, or not at all. PCLN was priced for perfection going into Q1, and while fundamentally a proven winner in the online travel booking space, the cautious guide in the immediate future could make a long trade here vulnerable for a quick reversal to the downside.
As noted earlier in the article, PCLN is sitting right at the April low of $678. This critical juncture should be noted as a support which once broken, may be a winning trade if played from the short side. This support has already been broken (by roughly 10pts) in the pre-market trade on Friday, 5/11/2012 and it has seen a close below the 50dma, over the last two trading sessions. On the other hand, If this support holds, and we see a run-up on the QQQs from the Facebook (NASDAQ:FB) IPO on Friday 5/18/2012 (tentative), PCLN may bounce off its current RSI of 38, which is technically a slightly oversold condition, and move toward its 52wk high range of 770.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.