Priceline.com Inc (NASDAQ:PCLN) Inc is a leader in online travel service, and is very well-known in the U.S. for its “name your own price” feature. What most American investors don’t realize is that Priceline.com Inc (NASDAQ:PCLN) makes most of its money abroad, particularly in Europe. In fact, in 2012 only 8% of the company’s operating income came from the United States. With the stock almost $90 below its 52-week high, is this a buying opportunity, or is most of Priceline.com Inc (NASDAQ:PCLN)’s growth behind it?
Priceline.com Inc (NASDAQ:PCLN) provides a variety of online travel services such as hotels, flights, rental cars, cruises, and more. Priceline.com Inc (NASDAQ:PCLN) works with over 295,000 hotels in over 175 countries in order to offer hotel deals to its customers. As mentioned, Priceline.com Inc (NASDAQ:PCLN) is primarily a European travel service provider. While there are some concerns about the company’s revenues being so dependent on Europe’s fragile economy, the increasing trend toward buying travel services online is making up for any adverse economic conditions.
Growth and Valuation
Priceline is planning to grow using a combination of increasing the services offered and growing its geographic footprint. Priceline has expressed its intention to expand its Asian business, hoping to replicate the success it has had in Europe. In terms of increasing the amount of services offered, Priceline most recently announced its intention to purchase Kayak Software Corp (NASDAQ:KYAK), a leading travel search site.
Analysts seem to think that Priceline will be very successful in growing its revenues in the upcoming years. The company is projected to earn $38.56 per share this year, up from 2012’s earnings of $31.28. The consensus calls for these numbers to grow to $45.98 and $54.53 in 2014 and 2015, respectively, for a three-year average forward earnings growth rate of 20.4%, which is absolutely incredible for such an established market leader such as Priceline.
This kind of growth makes the current P/E ratio of 21.8 seem very reasonable, and perhaps even a little cheap, considering that Priceline has over $4.2 billion in net cash (cash minus debt) on its balance sheet. Think of it this way: after backing out the cash, Priceline trades at less than 11 times 2015’s earnings. And, if the company’s Asia growth plans go well, the double-digit growth should continue for years beyond that.
The Alternative
As far as investment alternatives, there are really no direct competitors with the size and global footprint of Priceline, but the closest other choice is Expedia Inc (NASDAQ:EXPE).
By market cap, Expedia Inc (NASDAQ:EXPE) is about one-fifth the size of Priceline, and operates the Expedia online travel site, as well as websites Hotels.com and Hotwire. Expedia is projected to grow at around the same rate as Priceline over the next few years, as the number of people who make travel arrangements online is expected to climb.
Shares trade for 23.6 times TTM earnings, just a bit more expensive than Priceline. However, I like Priceline’s balance sheet better (more cash = more power) and Expedia doesn’t have as consistent of a track record of revenue growth. For instance, over the past decade, Expedia’s revenues have grown by a total of 72%, which sounds impressive, but not when compared to the 509% gain in revenues by Priceline during the same time period!
So, What to Do?
I completely agree that online booking of travel services is on an uptrend that should continue for the foreseeable future. Out of the two big online travel service companies, Priceline is my favorite due to its track record and its awesome balance sheet. However, in a sector that is growing as quickly as this one is, it’s hard to go wrong no matter which one you choose.
The article Online Travel Services Are Becoming More Popular; Here’s How to Play It originally appeared on Fool.com and is written by Matthew Frankel.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
