Mark Krieger's  Instablog

 PCLN has been on a roll lately. The shares have more than doubled in the last six months alone and the analysts seem to be  putting it in the “walk on water” class, however, the higher the shares climb, the more dangerous they become, as their potential fall becomes that much greater. It is safe to say the stock has gone up too far in too short of a time frame and is certainly prone to a correction through a wicked dose of profit taking.

 Since reporting  second quarter earnings, the shares have been on a tear, tacking on a impressive 20% gain from $130 to $155 just in the last nine sessions. Is it sustainable? Probably not, as the shares seem to be trading more  on emotion and momentum than logic. If you add in the fact that some scared shorts are being forced to cover, then the upward force is even more compelling. The problem is, these types of rallies are usually not sustainable and this appears to be  a classic case of sellers honing in on greater fools to dump their shares on. Somebody will be left holding the bag when everybody decides to head for the exits at the same time. A minimum retracement of one half its recent  $25 run-up since Aug 10th appears plausible.

Are the shares bulletproof? PCLN is merely an online portal. It’s not like it found the cure for cancer or a pill to take to get an instant six pack stomach. Its barriers to entry are minimal and a whole slew of competitors could decide to infiltrate the business, such as GOOG, EBAY, YHOO, AMZN and MSFT. The shares are now selling at a rich 21 times 2009 very generous estimates of $7.46, while competitor’s OWW and EXPE are nipping at its heels to gain market share.

 

Barclays Capital initiates coverage: Barclay’s initiated research coverage yesterday with a overweight rating .The problem is, Barclays happens to be one of PCLN’s largest owners with just under a 5% stake. Don’t you just think they might have a slight conflict of interest in pumping the shares. They certainly have more than adequate incentive to do so. Where was Barclay’s last November when PCLN was in the forties and why weren’t they recommending purchase then? They seem to have it backwards,  they disliked the shares when they were cheap, and love the shares when they are expensive. Isn’t the name of the game to buy low and sell high? Not to pick on Barclays, but their track record has not been good lately. To illustrate, they sold 3.1 million shares or 25% of Imperial Sugar’s outstanding shares  last March at $5.95 per share (coincidently the stock’s all-time low) and now IPSU trades at nearly three times the price. Go figure! The moral of the story is not to put too much credence in what analysts pontificate, as they are usually wrong more often than right.

 

The insiders are selling: Several Officers and Directors have taken advantage of the recent spike in the stock price by selling  shares the past three months.. Insider’s Craig Rydin, Chris Soder, Dan Finnegan, Robert Mylod, Ronald Rose, Jeff Boyd and Peter Millones have sold nearly 200,000 shares after exercising options to purchase the shares at an average price of $18.7 -making a cool $24 million profit in the process.

 

The bottom line: Even William Shatner would ask for a 20% discount on the stock at this juncture, and that might not even be enough.  It is just too expensive   and needs come back down to a more reasonable level. PCLN’s risk reward ratio is horrible, as its downside risk is nearly twice its upside potential. If I was long, I would be selling covered calls or setting stops to protect my gains before they quickly turn into losses, unfortunately I am short the shares and waiting for some sort of implosion to occurr to dig me out of a very deep hole.