Priceline Group Inc (NASDAQ:PCLN) finds itself in a correction phase. After peaking at over $2,067 per share in the summer, PCLN stock has lost 15% of its value.
This decline has occurred despite the fact that Priceline registered huge growth numbers. It’s this very growth, amid a recent decline, that has created a buying opportunity. With the company’s earnings growth and its relatively low valuation, investors should consider booking a trip on the Priceline train.
PCLN Stock Struggled and Then Succeeded Wildly
PCLN has been on quite a ride. The one-time darling of the 1990s dot-com boom found itself in trouble when that boom ended. Left for dead, it fell as low as $1.08 per share in 2001. The stock struggled for years to survive and, then, return to profitability. However, those who bought near the low and held on have enjoyed long-term gains that are the envy of the investment world.
PCLN started out with its original priceline.com website, which pioneered the concept of naming one’s price. With Priceline, buyers would suggest a price and travel companies would attempt to match that price. After the dot-com bust, the company diversified into other travel-oriented websites. Over time, Priceline acquired sites such as booking.com, agoda.com, rentalcars.com and kayak.com in an attempt to increase its travel offerings. In 2014, the company changed its name from priceline.com to The Priceline Group to represent its many portals.
Earnings Guidance Remains PCLN Stock’s Latest Struggle
However, PCLN stock has struggled over the last few months. The equity fall began in August. The company issued lower-than-expected third quarter earnings guidance and PCLN stock fell by almost 9.8% over two days. After the company released Q3 earnings in November, PCLN fell by an additional 13.5%. Again, lower guidance caused the stock price drop.
To be sure PCLN operates in a competitive industry. The company competes with the likes of Expedia Inc (NASDAQ:EXPE), TripAdvisor Inc (NASDAQ:TRIP) and Travelzoo (NASDAQ:TZOO). Like Priceline, these companies face constant competition in finding their customers deals to attract bookings and earn commissions. Other companies have taken a page from PCLN’s playbook and operate other sites. Orbitz Worldwide, Inc. has become part of Expedia, for example.
PCLN Stock Still Maintains Double-Digit Growth
The question of today remains if and when PCLN stock will resume its growth. The company’s stock appears to have fallen victim to an expectations game. All the metrics indicate the stock price slump will be temporary. Despite lower guidance, average revenue growth hovers near 20% per year. The company continues to enjoy 15% earnings-per-share growth per year as well. Analysts predict this double-digit earnings growth to continue for the rest of the decade.
Both Expedia and TripAdvisor enjoy comparable revenue growth. However, Priceline remains one of the few online booking companies to have positive average income growth over the last five years.
Additionally, PCLN stock trades at about 24 times earnings. This P/E ratio compares favorably to other booking sites. Expedia and Travelzoo both have a P/E ratio in the high 40s, while TripAdvisor trades at almost 74 times earnings. PCLN has also experienced an average 17.5% return on assets (ROA) and 31% annual return on equity (ROE) over the last five years. Travelzoo’s ROA and ROE percentages were nearly as high, but the other companies fell short on these metrics.
Final Thoughts on PCLN Stock
Given its long track record of impressive growth, buyers should consider a position in PCLN stock.
The fact that the PCLN stock price has fallen dramatically for two quarters creates a buying opportunity. And at 24 times earnings, buyers are getting in at a valuation lower than that of competing companies which grow more slowly.
Given the recent history, investors might be wary of Priceline’s earnings guidance. However, the healthy growth metrics should bring buyers back. For investors who can ride out the expectations game, adding PCLN stock in one’s investment portfolio should lead investors to high-flying gains.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
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