Trade Set Up - Priceline.com keeps on trucking along
Priceline.com (PCLN) is a leading online travel company that offers hotel and accommodation reservations at over 295,000 locations throughout the world. They operate a number of sites including Booking.com, Agoda.com and Rentalcars.com. Rentalcars.com operates from the UK and supports up to 40 different languages.
Typically, international consumers adoption rates of e-commerce and internet sites have been slower than that of customers in the United States. However, surprisingly Priceline.com's revenue is primarily derived from customers outside of the United States (about 84% in 2Q13).
Priceline.com has three revenue streams including agency, merchant, and other advertising. Agency revenues ($1.8B)* are derived from travel related transactions where Priceline.com is not the merchant. This means they are selling another company's travel services. As a result of making a sale, Priceline.com would receive an agent fee. All the credit card information is charged by that third party and not Priceline.com. This differs from the merchant revenue (1.1B)* whereby Priceline.com charges the customer's credit card for travel services, packages, hotel services that Priceline determines the prices on. Other advertising revenues (39M)* make up a smaller portion or revenue and is just advertising they do on their site for other sites.
The company has a number of serious competitors in the travel space. This can be viewed as good news and bad. It is good that other companies see that there is potential for profit in the space, but what happens is competition can get intense. These competitors include other internet travel services such as Expedia, Hotels.com, and Orbitz. In addition, to online travel services, there are a number of traditional travel agencies, large online portals such as Google, Yahoo!, and Bing, and other such travel providers like airlines and hotel companies.
Unlike most internet companies, Priceline.com is actually profitable. They easily booked $681M in net profit as of the six months ended 6/30/13 versus a $534M for the same period in the prior year or a 28% increase. What is surprising is that Priceline.com has a P/E ratio of about 30 as of end of Aug. 2013. This may seem high, but if you look at TripAdvisor or Expedia they are boasting P/E ratio of 48 and 47 respectively as of 8/30/13.
From a technical perspective, there were two buy opportunities in the past six months. But there may be more opportunities in the future. The stock first broke out in May and then broke out again in early July. These two points would have been great points to buy more of the stock or just to enter.
As it stands now, the stock is holding on to the 20DMA quite well, but I would like to see it close above the 20DMA. If you enter now you can put your stop at 925. That would give you a low risk trade set up with a target at around 960. Alternatively, you can also wait till it gets over the 20DMA and then use that as a stop.
While this may look like an expensive stock, it definitely has a low relative P/E ratio when compared to its competitors.
* For six-months ended 6/30/13