Why Will Priceline Split Its Stock?
Shares of Priceline Group Inc (NASDAQ:PCLN) are trading above $1,700 at the moment. And if you think that’s expensive, you are not alone. Many investors are craving a Priceline stock split in 2017. Some of them even want to see it divided seven ways, but the truth is that we don’t have an official PCLN stock split date 2017…yet.
I personally think one is on the way. Why? Because Priceline stock is getting too unaffordable for the average investor, and everyone knows it.
It’s no secret that PCLN is one of the best performing stocks of the last decade, having skyrocketed more than 2,866%. But the higher the PCLN stock price goes, the more exclusive it becomes. $1,700 isn’t exactly chump change.
To put it in perspective for Priceline’s management team (all of whom are reading this, I’m sure), here’s a list of things a person can buy for $1,700:
- 2 “iPhones 7s”
- 2 round-trip tickets from New York to Hong Kong
- A 2006 “Pontiac G6 Sedan”
- 11 shares of AAPL stock
- 26 shares of MSFT stock
- A 65-inch Samsung 4K Widescreen TV
I could keep going, but you get the point; $1,700 is a lot of money.
If you decide to go long on Priceline stock, you don’t have the option of “only putting in $200.00 or $300.00”—the price is just too high! That is why I call PCLN stock “exclusive.”
But I understand that not everyone agrees with me.
Some people feel my criticism is unwarranted. Maybe they earn well, or save a lot, or inherited a lump sum. In any case, they think that $1,700 is no different than $17.00.
That’s fine. I know a lot of people who would disagree.
One of my friends, for instance, is a contractor. He’s taken an interest in the stock market, but I don’t know what to tell him.
GOOGL stock is trading at $950.50, AMZN stock costs $958.49, and PCLN stock is way up there at $1,796.03 (at the time of writing). They’re way out of his price range.
I suppose he could save before investing, but that could mean losing out on big gains. Not to mention that it’s just plain wrong. He is a hard-working guy who does everything by the book.
Why shouldn’t he have access to the same stocks?
Sooner or later, Priceline’s management will come to the same conclusion, although perhaps not for the same reasons. They’ll do it because they need retail investors to power their stock.
PCLN Stock Split History
Strangely enough, PCLN stock has never split.
It has actually done the opposite: a “reverse stock split.” (Source: “Priceline.com Declares 1-For-6 Reverse Stock Split; Priceline.com Updates 2nd Quarter 2003 Financial Guidance, Earnings Targets on a Post-Split Basis,” Priceline Group Inc, June 16, 2003.)
|Priceline (Reverse) Stock Split History|
|June 16, 2003||1-for-6 (reverse)|
Reverse stock splits are exactly what they sound like. Rather than multiplying the number of outstanding shares, the company consolidates them. Although this means that ownership percentages stay the same, there is usually an immediate jump in the share price.
It should be noted that investors don’t trust reverse stock splits. I don’t blame them either, because reverse splits are often used to hide a crashing price. Management feel like the ship is sinking, so they try a last ditch attempt at buoyancy (which rarely works).
More often than not, reverse splits are the final nail in the coffin. Investors jump ship as soon as they see it coming. But there are a few exceptions—and Priceline stock is one of them.
Unlike the vast majority of reverse splits, Priceline stock has recovered tremendously during the last 14 years. Since it’s been more than a decade, we can safely say that it’s not a temporary thing.
PCLN stock is a genuine comeback story, full of valleys and peaks.
For instance, the stock fell from $100.00 to about $1.00 in 2003. This catastrophic decline is what prompted the reverse stock split, although the share price had moderated to $3.50 by the time it finally happened.
Boom. Priceline stock jumped to $22.00 almost immediately.
That being said, it wasn’t “happily ever after” from that moment on. Management had a long uphill slog ahead of them, which, to their credit, was openly recognized by the company brass.
Ex-CEO Jeffery Boyd said the reverse split “enhances our position by expanding investor interest, reducing transaction costs for trading our stock, making our results more comparable to peer companies with far fewer outstanding shares, and allowing priceline.com’s earnings per share on a post-split basis to more precisely reflect the company’s operating results.” (Source: Ibid.)
How Will Stock Split Affect PCLN Stock?
Priceline looks reluctant to complete a stock split, but that’s probably due to its history with the reverse stock split. It saw so much success from that one action; naturally, it is difficult to do the opposite of what triggered that success.
But now that the share price is reaching astronomical heights, Priceline’s hand may be forced towards a massive stock split, whether it likes it or not.
At $1,700 a pop, it may have to carve up PCLN stock into a lot of pieces to make it affordable. Even then, the stock will likely retain a triple-digit sticker price.
Here’s a quick chart to see how different ratios would impact Priceline stock.
As you can see, Priceline stock would still be expensive after a stock split. But it would become relatively more accessible, and that is important.
Some people might call this a financial sleight of hand. They might argue that a stock split is superficial, because it doesn’t change anything real about the company.
“Nothing is different,” they might say. “The company has the same tax liability to valuation metrics it had before. Its bottom line looks exactly the same.”
True enough. Everything they are saying is technically correct. Stock splits do not alter the fundamental strength of companies. But they do add trading volume.
Some people might end their analysis at this point, because trading volume is just trading volume, right? I’m not quite so sure. A surge in trading volume might represent new interest from a certain class of investor. (Say, the ones who couldn’t afford it at a higher price. Just maybe.)
Will PCLN Stock Split in 2017?
This “asymmetric volatility” to the upside could be amazing for Priceline.
In plain English, that means stock splits are more likely to help Priceline stock than hurt it. Think about it: why would a stock split increase someone’s desire to sell? There’s no added benefit of selling at an artificially lower price.
But there is a whole lot of value in buying at an artificially low price. It gives many investors the feeling that they can afford this stock. Even if that is only a psychological effect, it’s still relevant because we’re talking about human beings.
And at the end of the day, the market is nothing more than a collective of people. It has all the psychological trappings of a mob, and smart investors never forget that the mob has power; the power to move share prices.
In this particular case, I believe investors will trample over each other to get a piece of the Priceline stock split. It’s such an amazing stock, and better still, it shows no signs of slowing down.
Revenues continue to rise on an annual basis, and the international market is looking great for Priceline. Consumers are still spending lots despite the global economic turmoil, which is reassuring for anyone in the travel business.
My personal opinion is that Priceline stock will be forced into a stock split decision once trading volumes begin to thin out. There needs to be a critical mass of investors willing to steer clear of the high price.
However, that part isn’t going so well. Right now PCLN stock appears to be extremely liquid, so the wait for a stock split continues.
Management hasn’t even uttered the words “stock split” in their earnings calls. It seems they are willing to avoid the elephant in the room, which is that Priceline stock is trading way too high for a bunch of regular Joes to access.
I’m writing for those people. The Real Americans. The ones who keep their noses to the grindstone. The ones who work hard but never get a day to unwind, because they’re trying desperately to build a better future for their children.
I’m talking to them—and to you. Yes, you, dear reader.
Can you honestly say that you feel financially secure? Are you able to weather any storm that comes your way? Or do you feel like an extra few thousand (or tens of thousands) in your pocket might help?
Because anyone that feels a little short on cash should be eager for a stock split.
It means you can afford Priceline stock more easily. Why would you want to do that? Because, by all accounts, PCLN stock was one of the best performing stocks of the last decade. It might even help you put a few more dollars in your pocket during the next decade.
But what do I know? We here at Profit Confidential are only proven money makers.