Here is the thing about great stocks: they are almost always expensive. The case of Priceline.com (PCLN) is certainly no exception as it is minting money, but the stock is too rich for my liking. I just don’t feel comfortable paying up for a great stock, although many do. It’s a matter of investment style, and multiple styles can make money over the long term. That being said, let me explain why I love Priceline.com as a business right now.
Monster Quarter
The company earned $3.40 per share in the fourth quarter, a full 31 cents above estimates. Sales grew 35% and management also guided first-quarter earnings to a midpoint of $2.39, which is higher than the current consensus of $2.30 per share. I love the fact that gross bookings soared 44%, and international gross bookings jumped almost 65%.
Management had the foresight to invest in foreign markets, which has been paying off in spades lately. Its Booking.com subsidiary has focused on Asian and South American markets, which have benefited from strong economic growth and strong demand for hotels and travel. The bulk of profit growth going forward will come from these regions.
I think that the recent events in the Middle East and the rise of oil above $100 could be a potential roadblock for the stock. The travel sector will feel a huge pinch from this and Priceline might suffer, but you wouldn’t know it by the upbeat conference call and the increased guidance by management.
Priced For Perfection
Things are going great for the company now, but there is no room for error given the high valuations of the stock. This is the only reason I wouldn’t buy the stock right now as it is trading around 27.6x forward earnings, which is well above that of the market. I believe the stock warrants a premium given its growth rate and the way management is executing, but I like to buy stocks that have a higher margin of safety.
Momentum investors have had a ball with Priceline, and could continue to do so, but the risk of downside with a single misstep is too much for me. I will buy the stock when it falls dramatically or I develop a stomach of steel, whichever comes first.
I Would Love To Buy This Stock….But Only At Much Lower Prices is an article from: 
