Re-visiting Priceline (PCLN)

Time to check back in on Priceline - to recap last week, I liked it and was ready to buy (Priceline (PCLN)), but held off because of the chart (PCLN Again).  I wanted to wait and see where it went short term within its 2+ month trading range (hoping it would drop to the bottom of the range for a better entry point).  Here is today's chart:

You will notice that it did finally break out of the range the very day I decided not to go long (and has stayed above since), but the volume (see yellow above) has been lackluster.  To me that's not a solid breakout and should be eyed with caution.  While I still like the stock, I think it's just as likely to drop back below what I view as weak support around $426 in the short term.  Holding off again for now.

PCLN Again

Priceline 1/4/11

I was ready to go long on Priceline at the open this morning but have decided to hold off based on this chart.  PCLN has been in the range shown above since it gapped up in early November.  Currently it's in the middle of the range, which is not a terrible entry point, but I'd like to wait and see if it goes closer to the range bottom.  Of course a few things could happen:

• It could trade up to the top of the range, at which point I will likely wait and see if it breaks out on strong volume, which would be a good entry point
• It could just mark time where it is, and then I'll likely just go long around this level
• It could drop to the bottom of the range, which is my ideal entry point - yes, I know it could then break below, but I'll have a tight stop so if I'm wrong I can cut my loss quickly

Priceline (PCLN)

Priceline looks promising:

• Another high earnings grower like OPEN and NFLX - as expected, growth is declining. It's just tough to maintain such a high flying-growth rate - 55% for year-end Dec 2010 vs 33.6% for year-end Dec 2011.
• This is just plain cheap on earnings (using yesterday's close of $415.99) - trading at 31.5 times the 2010 EPS estimate which is a dirt cheap 0.57 times 2010 growth
• To give only a 10% upside from these levels, Priceline only needs to trade at 0.63 times the 2010 growth rate.

The 2010 earnings report is not far off, 2/4/11, so we should also take a closer look at how this stacks up against the 2011 estimates.

• PCLN is currently trading at 23.6 times 2011 estimates, which is still much less than 2011 growth, only 0.7 times the 33.6% rate.
• Looking at a 10% upside, Priceline only needs to trade up to 0.77 times the 2011 growth rate.

Of the 3 high growers, PCLN looks much cheaper than either OPEN or NFLX. I'm likely to go long on this one and will let you know when it happens.

Open Table (OPEN)

Open Table is interesting:

• The growth rate is declining - 106% for Dec 2010 vs 54.4% for Dec 2011. But c'mon man, it was growing over 100%! Tough to hold that against it.
• Not expensive at all at current price of $70.65 - yes, it's trading at 103.9 times the 2010 EPS estimate, but that's 106% growth, so it's still trading at slightly under 1 times the 2010 growth rate.
• Open Table only needs to trade at 1.07 times 2010 growth to give a 10% upside from here - still cheap. If it could trade 1.25 times growth, we're looking at a near 19% upside.

As I'm looking for opportunities as far away from double the growth rate as possible, this fits. Some other things I'm considering before jumping in:

• 2010 earnings report on Feb 7th - not that far away and I typically like to stay out (or be out) of trades when the report hits.
• Since 2010 earnings is so close, the 2011 earnings outlook may be more relevant - to get the same 10% upside referenced above, OPEN needs to trade at 1.36 times 2011 growth. Yes, that still looks cheap, but still higher than the 1.07 above.
• Also want to analyze a couple other high-growth stocks, Netflix and Priceline.

Definite maybe to go long on OPEN - I'll keep you updated.