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Priceline.com (PCLN) is a pureplay internet travel website and a pioneer in its field. Priceline was one of the first internet sites to offer discounted airfares, hotels and car rentals and the first and only site that allows you to bid for airfare, hotels and car rentals for your travel (unless you consider Luxury Link which caters to the high-end vacation market).

The Priceline stock has been bid lower over the last few weeks with the rest of the market, yet fundamentals never looked better. The 27% drop in its value is surprising given the strength of the company's earnings. The quarter ending March saw revenues increase 34% to $403.2 million and profits up 77% to $0.76 a share. Gross travel bookings increased 76% taking market share from rivals Orbitz (OWW) and Expedia (EXPE), including an increase in domestic bookings by 51%. The earnings beat estimates handily making it 8 consecutive beats.

Each of the two previous earnings have resulted in a double-digit gain for the stock. Back in February, the stock bolted 21% the day after earnings to $124, whereas the earnings release in May moved the stock 12% to $144. Price action in the stock since then reflects a weak summer for travel but I think the market has overreacted. Currently, the stock trades at a PEG ratio of 0.73 and 15 times 2009 earnings, with short interest at 27%.

A weak US economy has not really impacted Priceline.com as more budget conscious shoppers are going to the site for their purchase. This is evident as the average total value of its bookings has gone up significantly.

Additionally, the company is expanding its online services to Europe and Asia, where a big part of its future lies. According to Aaron Pressman of BusinessWeek, over 60% of its revenues are now coming from outside the US.

Finally, it is cutting its fees on many of the bookings, which gives the company an edge over its competition and means that it has leverage with its partners, which allows it to improve its margins.

I recommend buying the stock here at the 200 day moving average with a stop below $100.

Full Disclosure: I own PCLN but my position can change anytime without notice.

Source: Priceline Stock Takes a Flight to Value