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$600 is the Lucky Number

Stock (Symbol) Stock Price

Priceline.com (PCLN)

$441

Data is as of Expected to Report Sector

January 11, 2011

Feb 14

Retail & Travel

Sharek’s Take
David SharekI started this article with a negative outlook on Priceline.com (PCLN). The stock went from $73 to $400 during 2008 & 2009 and the Retail & Travel sector shot its wad in 2009. Plus the 28 P/E is high by historical standards.
 
Here’s what PCLN’s P/E was in other Q4s:
2005 13
2006 17
2007 23
2008 12
2009 21
2010 28
 
After I built the new PCLN spreadsheet, I got excited that there’s fuel left in the tank that this stock can move higher. There are a couple reasons why I think $600 is the magic number for PCLN in 2011
One-Year Chart
PCLN went from $218 to $400 in 2010. The stock had two breakouts in the last 12 months — one in July and the latest in early 2011. The first was off a cup-no-handle the second off a flat base. I prefer cup-with-handles. This chart pattern is a little dangerous. Profits along the bottom look great, so the stock has great legs, just know that if or when we get a market/PCLN correction this stock is going to have a lot of sellers.
Earnings Table
Profit growth was 54% last quarter on a 37% gain in sales. PCLN did $1billion in business last quarter (the Sept. Quarter is the best, Summer travel). Previous “summers” were $731mil (2009) and $562mil (2008) so PCLN is in the zone.
 
PCLN has crushed estimates by 39 cents and 44 cents the last two quarters — travel is back baby! I need to book a trip.
 
The best thing about PCLN is Annual Profit Estimates are jumping higher. Consider this: 2011 est. have gone from around $13 to $15 and $17.50 the last three quarters. This company could earn $25 in 2011.
 
Looking ahead to the next four quarters, profit growth is expected to average 36% and next quarter’s estimates just surged higher. 34 times earnings are achievable.
Fair Value
There are two reasons $600 is PCLN’s lucky number. First, If we put a 34 P/E on current estimates of $17.65 we get $17.65 x 34 = $600.
 
Second, if we use a more realistic 24 P/E (the 2007, 2009, 2010 avg., omitting the wacky 2008) on what I think PCLN could earn, we get $25 x 24 = $600.
Ten-Year Chart
Wow, this ten-year chart shows a very extended stock. Mainly because earnings are up ten-fold in six years and also because the P/E is higher. The 28 P/E isn’t really that high, it’s just higher than it has been. When this stock corrects, look out — the next stop down is in the $200s.
Power Ranking Bottom Line
Growth Portfolio

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2011 will be the year of travel. 2010 was when we got out and replaced our clothes and shoes, 2011 will be when we take vacations. Expect annual estimates to keep climbing and for the good news in the sector to continue.
 
PCLN is ranked 3rd in the 20 stock Growth Portfolio Power Rankings. Since PCLN just broke out, the stock is extremely timely. In the more narrow-minded Aggressive Growth Portfolio,
PCLN is ranked 2 of 10. Baidu.com (BIDU) is behind PCLN in this portfolio because BIDU basing.
Aggressive Growth Portfolio

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