With 139 studies completed over the past three months using BetterInvesting’s online tools, Priceline (ticker: PCLN) is a popular study subject. It was also named the Stock to Study for June. Using our online tools’ Member Sentiment Feature, we see that users feel Priceline is a high-growth company with promising potential return.
Users’ estimated five-year annual sales growth rate was about 18 percent, and the forecast for earnings per share was almost 17 percent. Both values are well below those of the 10-year annual rate as well as the rate from 2011 through 2014.
The expected low and high annual P/Es are 17.4 and 28.2, in line with the five-year averages. Despite its strong growth history, Priceline’s current valuation is below the historical average. Members of BetterInvesting’s Editorial Advisory and Securities Review Committee suggest this is because of increasing concerns about competition. Indeed, this is a highly competitive marketplace. On the other hand, Priceline’s name recognition is high, and Morningstar has assigned the company a narrow moat, meaning Priceline does have some sustained competitive advantages.
When we plugged these judgments into the SSGPlus or CoreSSG program on April 20, the resulting return potential suggest that further study is merited. The forecasted high price was above $2,800 (maybe we’ll see a stock split before then). We assumed a low price of almost $795, based on the estimated low P/E of 17.4 and low EPS of $45.67, which was the EPS in 2014.
The upside-downside ratio (or risk-reward, if you prefer) at the current price of $1,188 is 4.2 to 1, above the 3-to-1 minimum we seek. Finally, the potential return for the next five years is a healthy 19 percent a year.
Priceline’s Stock Selection Guide shows a company growing sales and earnings at high, consistent rates. Among the additional study items for investors is whether in light of increased competition, Priceline will be able to sustain pre-tax profitability exceeding 30 percent.
(Stocks are mentioned only for educational purposes. No investment recommendations are intended.)