Shares of priceline.com (NAS: PCLN) hit a 52-week high today. Let's look at how the company got here and whether clear skies are ahead.
How it got here
The Priceline story recently is as much attributed to a lack of true competition as it is to international growth. The company, which allows users to book travel and hotel deals online, is now seeing the fruits of its aggressive push into Europe, Asia, and Latin America. With 78% of all revenue derived internationally, Priceline holds a commanding lead over peers Expedia (NAS: EXPE) and Orbitz Worldwide (NYS: OWW) , which generate most of their revenue domestically.
In fiscal 2011, Priceline's net revenue jumped 41%, with net income practically doubling year-over-year to $20.63 per share. Although Priceline may have killed off its negotiator, William Shatner, it appears the legacy of 20%-plus revenue growth is still well intact.
How it stacks up
Let's see how Priceline stacks up next to its peers.
Make no mistake about it -- Priceline is leading the charge in online travel booking, and everyone else is just picking up the scraps.
Price/ Cash Flow
|Ctrip.com International (NAS: CTRP)||2.7||10.9||16.5||33.2%|
Sources: Morningstar, author's calculations; CAGR = compound annual growth rate.
But for all the talk of Priceline's dominance, it's very difficult to wrap my hands around its current valuation compared with the rest of the travel services sector. Orbitz had one huge growth year from 2006 to 2007, which skews its five-year growth results (revenue has slowly dropped since then). But Ctrip.com has shown similar strong growth in China, and it's done so with remarkably cheaper metrics at just a fifth of Priceline's price-to-book and a third of its price-to-cash-flow. Even the slower growing Expedia looks like a value play, with just 4.4 times cash flow.
Now for the real question: What's next for Priceline? That question really depends on whether the company can continue to grow at close to 30% per year, which I feel that it needs to do to maintain its current pricey valuation.
Our very own CAPS community gives the company a two-star rating (out of five), with 75% of members expecting it to outperform the market. I'm part of the 25% that currently has a CAPScall of underperform on Priceline; unsurprisingly, I'm down 33 points on that pick. Even though I'm currently down, I'm not considering myself out. With considerably cheaper alternatives in Expedia and Ctrip -- as well as the emergence of MakeMyTrip (NAS: MMYT) , which has the potential, along with Ctrip, to lure international online bookers away from Priceline -- I don't see how Priceline will be able to maintain its lofty valuation.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Ctrip.com International. Motley Fool newsletter services have recommended buying shares of priceline.com and Ctrip.com International. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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