If you’re holding onto shares of Priceline Group Inc (NASDAQ:PCLN) stock, you’ve been rewarded nicely lately. PCLN stock is up about 20% in the last month since the company reported better-than-expected earnings.
Investors’ fears about a global growth slowdown affecting Priceline’s earnings have mostly subsided. But PCLN stock still has more room to run. Here’s why.
PCLN Is a Great Business
Priceline leads the online travel services market, which provides hotel booking, car rentals, and flight reservations online. The company operates several sites, including Booking.com, Agoda.com, Vilas.com, and Kayak.com, which offer similar services but in different geographical regions. The first of those is the company’s largest site, which mostly serves Europe. Priceline also recently acquired restaurant booking site OpenTable.com and car rental site RentalCars.com.
Priceline mostly operates as an “agent” for a third party that is selling its services. When a room is booked through Booking.com, for example, Priceline gets commission on the sale. There is almost no cost of inventory for the company, resulting in high profit margins. In the last quarter, the company’s profit margin was about 27%.
The company has a massive moat. It may not be the leader in the U.S.—Expedia Inc (NASDAQ:EXPE) is—but the company has a massive global presence.
Booking.com is the world’s largest travel booking site and accounts for the majority of Priceline’s revenue. In the fourth quarter of 2015, Booking.com had more than 850,000 hotels and accommodations listed on its site, growing 34% over the previous year. (Source: “The Priceline Group Reports Financial Results for 4th Quarter and Full-Year 2015,” Priceline Group, accessed March 3, 2016.)
By comparison, Expedia has only 269,000 hotels and accommodations (Source: “Expedia, Inc. Reports Fourth Quarter and Full Year 2015 Results,” Expedia Inc, last accessed March 2, 2016.)
Even though PCLN stock’s international business accounts for about 84% of total revenue, there are still many markets the company has not tapped into. Online travel services are still a novelty in many emerging markets, which means there is plenty of growth for the company in the years ahead.
China remains largely untouched, but Priceline is making a push into the market, which has huge potential for growth. The company has pumped almost $2.0 billion into Ctrip.com International, Ltd. (NASDAQ:CTRP), China’s leading online travel site. Priceline now accounts for about 15% of Ctrip’s public stock float. (Source: “The Recent Drop In Priceline Stock Creates A Buying Opportunity,” Amigobulls, February 11, 2016.) Ctrip is China’s largest online travel discount site, accounting for about 50% of the total Chinese market. Revenue in the trailing 12 months are about $10.0 billion, almost double the amount from a year ago. (Source: Ibid.)
The Bottom Line on PCLN Stock
Priceline is a top-quality business with lots of room left for global growth. With a forward price-to-earnings ratio of 16, PCLN stock is looking cheap and might deserve a closer look.