The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Not even William Shatner could have negotiated a better stock price for Priceline.
Shares of the online travel site -- most famous for those amusing ads with the original Captain Kirk -- are currently trading at about $930. That's not a misprint. And with earnings due out Thursday afternoon, it's not implausible to suggest that Priceline (PCLN) could top $1,000 if its results and guidance are strong.
Priceline might get to four digits before Google (GOOG). Google's shares are hovering just below $900 ... and the company may finally complete its convoluted stock split before it ever reaches $1,000.
Priceline has been on an amazing ride for the past few years. The stock sunk as low as $45.15 a share in October 2008. So it's up nearly 2,000% since then. Not too shabby, huh?
What makes the approaching $1,000 milestone even more miraculous is that the stock is getting close to its all-time high of around $990 a share (adjusted for a 1-6 reverse stock split) from April 1999. That was shortly after the company went public.
It's stunning that Priceline is still around. Reverse stock splits are usually a sign of desperation from a company in serious distress.
Why has Priceline done this well? It's all about the fundamentals. Earnings have grown more than 50% a year, on average, for the past five years. Analysts expect Priceline to post an earnings increase of about 20% for the second quarter when it reports Thursday.
The company has become the clear leader in online travel, easily outpacing the likes of Expedia (EXPE), Orbitz (OWW), TripAdvisor (TRIP) and Travelzoo (TZOO). Priceline augmented its position as the king of the industry earlier this year with its purchase of travel software firm Kayak.
"A lot of people don't understand or appreciate what Priceline has accomplished over the past decade or so," said Scott Kessler, an equity analyst with S&P Capital IQ. "This is one of the few companies that survived the dot-com bust of 2000 and is doing even better." You could argue that Amazon (AMZN) and eBay (EBAY) fit that bill too.
But is Priceline overpriced? Is this a repeat of the dot-com insanity in 1999 and early 2000? It doesn't look that way.
Priceline is trading for less than 20 times 2014 earnings estimates. That's not dollar-store cheap but it's not a ludicrous Neiman Marcus Christmas Book price either. (Check out the $90,000 arcade system on page 66.) The stock is more expensive than Expedia but it's trading at a discount to Orbitz, TripAdvisor and Travelzoo.
And when you look ahead, Priceline should have some clearer skies (travel pun intended) ahead of it. It's hard to imagine that demand for flights and hotels is going to suddenly take a turn for the worse. The U.S. economy is continuing to slowly improve. What's more, the European economy is showing signs that it may finally have bottomed. If that's true, that's fantastic news for Priceline.
The company's Booking.com unit has heavy exposure to Europe and shares of Priceline have been whipped around a bit over the past few years due to concerns about the eurozone debt crisis. (Booking.com has also started to advertise more aggressively in the U.S. as well ... albeit without the Shat and "The Big Bang Theory's" Kaley Cuoco.)
And in a mid-year report from money management firm Friess Associates, which owns a big stake in Priceline in both its Brandywine (BRWIX) and Brandywine Blue (BLUEX) mutual funds, analysts noted that Priceline has "an especially appealing opportunity" to expand in Asia through its Agoda subsidiary.
If anything, I think the bigger risk for Priceline is not that the company's growth will start to slow. It's that expectations are so high, not even a solid earnings beat may be enough to keep investors satisfied.
Consider this. Wall Street analysts expect Priceline to report earnings per share of $9.38 for the second quarter. If Priceline merely meets that, it may be viewed as a disappointment. The consensus over at Estimize, a site that crowdsources earnings and sales forecasts from a wider group of investors (including hedge funds and other buy-side professionals) is a touch higher, at $9.57.
But even if Priceline gets dinged in the short-term for failing to live up to the considerable hype, the stock still looks like a winner for the long-term. As I've been fond of saying for nearly three years now ... Don't short the Shat!
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