Are Shares of Overpriced?

Shares of (NAS: PCLN) , the "name your price" travel site, are up more than 51% year to date and currently trade around $700 a pop. For most retail investors, including myself, that's a pricey valuation. But the negotiator (minus William Shatner) has been on a roll lately, and some analysts believe the company's new mobile strategy along with growth overseas will take the stock even higher. Is this too much of a good thing? Let's dig deeper to find out if it's too late to grab a piece of the Priceline growth story.

The race is on among Priceline, Apple (NAS: AAPL) , Google, and Intuitive Surgical (NAS: ISRG) to be the first S&P 500 stock to reach $1,000 a share. While Priceline, Apple, and Google are considered Internet stocks, Intuitive Surgical makes robotics for use during surgery. The chart below highlights each stock's current price position to give you an idea of where they stand relative to each other.

PCLN Chart
PCLN Chart

PCLN data by YCharts

As you can see, Priceline has a strong lead over Apple, Google, and Intuitive Surgical, which are stuck within the $500 range. But that can change in an instant -- just think of how quickly shares of Apple climbed in value. This year the Mac maker became one of five U.S. companies to ever have achieved a market cap of $500 billion. Still, it's important to understand that just because a stock hits a new all-time high doesn't mean it is overvalued.

What goes up...
Priceline is up about $250 a share in just the last three months, which gives some investors reason to believe the stock is headed for a correction. However, I'm not so sure that's the case. With shares trading at 18 times forward earnings, the stock looks like a bargain against its projected earnings growth.

The company's earnings-per-share growth over the past five years was an impressive 65%, but how does Priceline plan to sustain that momentum going forward? Strong international growth, primarily driven by increased hotel bookings in Europe, should continue to boost revenue for the company. Additionally, the Priceline business model of offering discount travel rates on car rentals, hotels, and flights has helped it stay afloat despite a weak U.S. economy and a slowdown in Europe.

Dare to compare?
While more than 80% of Priceline's operating income is already generated outside the U.S., the company still has room left to run in emerging markets like Asia and Latin America. As a leader in the global travel market, Priceline is leaps and bounds ahead of the competition. Its closest rival is Expedia, followed by (NAS: CTRP) and smaller booking site Orbitz (NYS: OWW) . Priceline's international exposure continues to drive strong revenue growth for the company, while competitors are struggling to keep up.

PCLN Revenue Growth Chart
PCLN Revenue Growth Chart

PCLN Revenue Growth data by YCharts

Priceline's closest competitor in terms of revenue growth is Ctrip, thanks to its tight grip on the Chinese market. However, Ctrip's EPS growth over the past five years is just 31%. While this is a positive growth rate by most standards, it is less than half that of Priceline's. Meanwhile, year-over-year quarterly earnings growth for Ctrip is in the red at -15% -- compared to nearly 66% quarterly growth for Priceline.

Race to the finish
High growth and steady margins are some of the motives for shares of Priceline to break the $1,000 mark in the coming year. Another reason to believe in the booking site is the company's new mobile strategy. The recent launch of its Tonight application is getting a lot of attention from travelers who book hotel reservations or car rentals at the last minute.

Rival Orbitz also recognizes the advantage of getting last-minute purchases from smartphone users. The company claims to be the only travel-booking site that offers entire vacation packages on mobile devices. However, Priceline's new app puts it in the mobile game, and because mobile costs less to implement, the company should make a nice return. Overall, I think the Priceline growth story will keep getting better.

I think the company's lead market position, exposure overseas, and attractive profitability will continue to power outperformance going forward for the stock. Throw in a lack of real competition in the space and we have ourselves a winner. Additionally, I wouldn't be surprised to see Priceline surge ahead of Apple, Google, and Intuitive Surgical to break the $1,000 a share mark.

For these reasons, I don't think shares of Priceline are overpriced. However, there are equally good stocks available at a lower price per share if you know where to look. That's why I invite you to read this free report from The Motley Fool: "5 Stocks Investors Need to Watch This Earnings Season." This special free report will only be available for until the end of the month; to take advantage of this limited time offer, simply click here for your free copy.

At the time thisarticle was published Fool contributor Tamara Rutter owns shares of Apple. Follow her onTwitter, where she uses the handle@TamaraRutter, for more Foolish insight and investing advice. The Motley Fool owns shares of International, Apple, and Intuitive Surgical. Motley Fool newsletter services have recommended buying shares of Apple, Intuitive Surgical, International, and Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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