Currently, Priceline (PCLN) trades at a forward PE (price-to-earnings) multiple of 17.1x. This is higher than its average valuation of 20x since November 2008. It is, however, lower than rival Expedia’s (EXPE) forward PE multiple of 25.5x and the industry median multiple of 24.9x.
The market expects Priceline’s earnings per share (or EPS) to grow 13.3% in 2017 and then increase to 16.4% in 2017. Rival Expedia’s EPS could grow 17.7% YoY (year-over-year) in 2017 and then increase to 28.4% YoY growth in 2017.
As can be seen from the chart above, PCLN has mostly traded above the industry median since 2008, moving below the median only in 2015. Peers used in this industry median calculation include PCLN and EXPE. Priceline’s peers TripAdvisor (TRIP), Ctrip.com (CTRP), and Qunar (QUNR) are not strictly comparable and are excluded from this comparison.
What should investors track?
Priceline’s (PCLN) growth strategy in the past has been to acquire new and smaller businesses. Together with Expedia, it has already acquired several smaller travel companies, leaving little on the table. As a result, investors should keep an eye on Priceline’s acquisition strategy. The next leg of travel growth is expected to come from Europe and Asian markets.
Investors should also watch the terror situation around the world. The frequent terrorist attacks in 2016 subdued travel on a short-term basis, affecting online travel stocks.
Economic growth should also be a key factor to watch, as this would mean increasing disposable income. This is good news for OTAs like Priceline, as it means more people would be able to afford to travel.
To avoid the risk of investing in a particular stock, investors can have broad-based exposure to Priceline by investing in the First Trust NASDAQ-100 Ex-Technology Sector Index ETF (QQXT), which invests 1.6% of its holdings in the stock.