Currently, Priceline (PCLN) trades at a forward PE (price-to-earnings) multiple of 27.3x. That’s higher than its average valuation of 22.0x since November 2008. However, it’s lower than rival Expedia’s (EXPE) forward PE multiple of 30.8x and the industry median multiple of 29.1x.
The market is expecting Priceline’s EPS (earnings per share) to rise 14.2% in 2017 and then to 17.0% in 2017. Rival Expedia’s EPS is expected to rise 14.5% YoY in 2017 and then to 30.1% YoY in 2018.
As you can see in the above graph, PCLN has mostly traded above the industry median since 2008, moving below the median only in 2015. Peers used in industry median calculation include PCLN and EXPE. Other players such as TripAdvisor (TRIP) and Ctrip.com (CTRP) are not strictly comparable and are thus excluded.
What’s priced in?
Priceline’s valuation currently takes into account its continued growth, which will depend on multiple factors. The most important one is travel growth around the globe. The second important factor is growth across emerging markets such as India and China. The third factor is Priceline’s ability to acquire competitors at cheap valuations.
Risks to valuation
Investors should watch for terrorist activity around the globe, which can significantly dampen the travel industry. Economic growth will also be a key factor to look for, as it would mean increasing disposable income and increased travel.
You can gain exposure to Priceline by investing in the SPDR MFS Systematic Growth Equity ETF (SYG), which invests 4.2% of its holdings in the company.