![\"WilliamCikos_Contributor_ImageBadge350\"](\"\/\/www.ino.com\/blog\/wp-content\/uploads\/2014\/12\/WilliamCikos_Contributor_ImageBadge350.png\")
<\/p>\n<\/p>\n
<\/p>\n
We\u2019ve all seen those lousy William Shatner commercials.<\/p>\n
Priceline Group Inc. (SPX: PCLN) is an online travel company that offers its customers hotel room reservations at nearly 300,000 hotels worldwide through the Booking.com, priceline.com and Agoda brands. In the United States, the company also offers its customers reservations for car rentals, airline tickets, vacation packages, destination services and cruises through the priceline.com brand. Additionally, it offers car rental reservations worldwide through rentalcars.com.<\/p>\n
![\"PCLN](\"\/img\/sites\/ino\/email\/6215.jpg\")
\nCourtesy of Finviz.com<\/small><\/p>\n
Priceline\u2019s stock has taken a beating in recent months. After closing at $1,009.48\/sh on Friday, shares of PCLN have already dipped by 11.6% in the first month of trading this year. On March 6th, 2014, shares peaked at $1,378.96\/sh. Now, less than 11 months later, Priceline\u2019s stock trades 37% below that price.<\/p>\n
Shares of PCLN severely underperformed the market last year, losing half a point in 2014 versus the S&P 500\u2019s return of 83%. This comes as a surprise, considering Priceline\u2019s FY 2014 EPS is expected to have grown by 26% YOY when full-year earnings are announced on February 19th. With its current price sitting just 2% above its 52-week low point, PCLN has become an incredibly undervalued stock and an obvious buying opportunity for long investors.<\/p>\n
![\"PCLN](\"\/img\/sites\/ino\/email\/6216.jpg\")
\nCourtesy of YCharts.com<\/small><\/p>\n
At 22.8, Priceline\u2019s P\/E ratio is in the lower echelon of its 5-year range. This means that an investor who buys PCLN today will have paid less for each dollar of earnings than the vast majority of investors who\u2019ve bought the stock in the last five years. During that same period of time, the company\u2019s earnings increased more than four-fold, growing by 327% in just 5 years\u2014an effective annual growth rate of 33.6%. According to the analysts\u2019 consensus estimates, Priceline\u2019s non-GAAP earnings are expected to expand by another 16% next year, giving the stock a forward P\/E of 16.6.<\/p>\n
Furthermore, Priceline\u2019s bottom lines are expected to grow at an annual rate of 19.4% through the next 5 years (source: FinViz). Using this growth rate, the stock\u2019s PEG ratio is just 1.18, which represents an abnormally low growth-based valuation for a well-known company whose market cap exceeds $50B. If Priceline performs anywhere near its long-term earnings expectations, I believe this stock will greatly outperform the market.<\/p>\n
The 23 analysts covering the company have set a mean price target of $1,335.65\/sh. This represents a 32% increase from PCLN\u2019s currently quoted price.<\/p>\n
![\"PCLN](\"\/img\/sites\/ino\/email\/6217.jpg\")
<\/p>\n
As you can see in the ratings above, the majority of analysts maintain either a \u201cBuy\u201d rating or an \u201cOutperform\u201d rating on the stock. This is unusual for a stock that\u2019s been performing as poorly as PCLN, considering how analysts typically don\u2019t unanimously project a stock to reverse its price trend. However, the high degree of conviction in which they\u2019ve done so is a sign that Priceline\u2019s investors are due to enjoy much higher returns in the coming months.<\/p>\n
The company\u2019s board of directors is receiving pressure from Priceline\u2019s investors to either pay a cash dividend or start buying back stock. The 4-digit stock price is relatively high for a publicly traded issue, allowing for less liquidity than the numerically cheaper alternatives which are trading on the open market. Therefore, a stock buyback probably wouldn\u2019t have the desired effect on Priceline\u2019s share price; whereas if the company decides to take the dividend route, shareholders can rely on receiving a guaranteed cash payment every 3-4 months. That said, it would be a much more effective means for Priceline to return cash to its shareholders through a dividend distribution program, as opposed to a share repurchase program.<\/p>\n
![\"PCLN](\"\/img\/sites\/ino\/email\/6218.jpg\")
\nCourtesy of YCharts.com<\/small><\/p>\n
Although it\u2019s not a definitive arrangement, it stands to reason that Priceline will eventually start dishing out to shareholders the large pile of cash it\u2019s been accumulating. Looking at the chart above, the company is currently holding onto $6.24B, or $119.08\/sh in cash. This figure has grown by 405% in the last 5 years and 2.5K% in the last 10 years. Hopefully, Priceline will eventually address the fast-growing, unnecessarily large amount of cash on its books, make the right decision, and begin returning it to its deserving shareholders. <\/p>\n
I believe it\u2019s likely to happen sooner rather than later. With a current ratio of 4.6, the company has more than enough financial flexibility to make it happen. Priceline has $5.715B in Net Working Capital, or $109.06\/sh. Priceline even has the ability to pay off the entirety of its debt (i.e. its total liabilities) using only its current assets. The remainder, known as \u201cNet Cash,\u201d amounts to $853M ($16.28\/sh). It seems inevitable that Priceline will eventually begin forking over\u2014at minimum\u2014the amount Net Cash that it\u2019s holding, otherwise it will only be eaten away by inflation if it decides to continue hoarding it.<\/p>\n
Given Priceline Group\u2019s extremely attractive growth-based valuation, I highly recommend initiating a long position at its current price level. Along with me, the 23 analysts covering the company agree that PCLN is due to excel throughout the remainder of this year.<\/p>\n
Furthermore, if you\u2019re willing to hold onto this stock for the long-term, I\u2019m confident that in due time you\u2019ll be receiving an additional return through a quarterly dividend payment. If and when that happens to be the case: Due to Priceline\u2019s 4-digit share price, I\u2019d recommend taking full advantage of a Dividend Reinvestment Program (DRIP) as a cheap and effortless way to increase the size of your position.<\/p>\n
Many are concerned about Priceline\u2019s exposure to the Euro, and as a result, they\u2019re bearish on the outlook of the business. While I\u2019d argue that foreign exchange fluctuations are highly unlikely to have a significant effect on Priceline\u2019s long-term success, I also understand the durable nature of investors\u2019 convictions. If your views of Priceline Group align with that sentiment, I\u2019d ask you to take into consideration that the market might very well be exaggerating the potential effect of forex fluctuations on the company\u2019s long-term business. If you\u2019re willing to acknowledge that possibility but are still unwilling to alter your stance on the stock, then purchasing call options is probably your best bet. <\/p>\n
The current asking price is $40 for the 1240.0 Call expiring January 15, 2016, which will be \u201cin the money\u201d if and when Priceline\u2019s stock price increases by at least 23% in the next 349 days. Purchasing this option is a bet that at some point within the next year, PCLN will surpass a price that\u2019s 7% below the analysts\u2019 12-month price target, giving you the potential to profit by $190.52 for each option purchased if that assumption is in fact correct. Priceline was also quoted above $1,240\/sh as recently as last September (less than 5 months ago). Any option that\u2019s structured in a similar manner as this one is a great buy for those investors who hold a \u201clukewarm\u201d view on Priceline Group\u2019s 2015 performance, but who found my analysis on the stock to be convincing.<\/p>\n
![\"Shatneresque](\"\/img\/sites\/ino\/email\/6219.jpg\")
<\/p>\n