1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Dr. Paul Price
Dr. Paul Price
Articles  | Author's Website |

Priceline – Cheap At Over $1,000 A Share

January 16, 2015 | About:

Priceline – Ready to Rebound

Can a very high-priced share still be a bargain?

Online travel agency Priceline (PCLN) has been as reliable a grower as almost any stock out there. The firm’s balance sheet is solid. The stock registers in the top 1% of the 1700 companies Value Line's main research universe, in terms of long-term appreciation.

Priceline's blend of outstanding fundamentals plus a high beta allow for good entry and exit points for those wanting to play with these shares.

Priceline is a pure play on the overall worlwide increases in travel via direct, customer-initiated (internet) bookings. Their 10-year numbers reflect the very favorable trends.

Somewhat surprisingly, when considering all-time record results, PCLN had drifted down from a 2014 peak of $1,379 to under $1,000. The Jan. 16, 2015, low also established a new 52-week nadir, at $990.61.

It is easy to get a bit foggy when dealing with absolute share prices this high. Refocus on valuation by looking at Priceline’s historical P/Es at key ‘best buying opportunities".

Friday’s new low put PCLN at its best (lowest) valuation since 2010, just before a less than one-year, 224% run higher. The late 2011 sell-off preceded a quick rebound from $402 to $775. The 2012 pullback to $554 turned out to be a base for the run to almost $1,400.

The two periods when PCLN paused each came from somewhat overvalued territory, at about 25x and 26x what were then current year EPS.

Priceline’s present-day multiple is just 16.5x expected 2015 EPS of $61.05. It was greater than 17x at each of the two most recent previous launching points.

PCLN’s very steady, post-recession average valuation, has run 20.7x. A return to that level would support a 12-month goal price of $1,264.

Better than 25% upside, on a proven growth stock, at a below market valuation is a good thing. Deep-pocketed option writers can capture significant dollar premium by selling a PCLN Jan. 20, 2017, $1,000 put @ $150 per share.

I was able to do exactly that with the stock trading for $1,006.43.

The "if exercised" price drops all the way down to $850 ($1,000 strike price - $150 put premium). If the 2015 estimate proves accurate, the worst-case scenario would leave me forced to buy 100 PCLN at less than 14x earnings. Priceline has not changed hands as low as $850 for more than 18 months (see chart). It spent greater than 99% of the past 14 months above the $1,000 mark.

Selling this put was like “naming my own price” at $850 a share.

The best-case outcome merely requires PCLN to hold above that same $1,000 level on the option’s expiration date in January 2017. By 4 p.m., Priceline had closed at $1,008.22, already placing it above the minimum price needed two years out.

Maximum profit is capped at 100% of the premium collected. In this case, that is a hefty $1,499 after commission.

Please note that each contract sold represents a potential net purchase of $85,000 worth of shares. This option trade is not appropriate for small accounts.

Think dollars and not 100 shares. Think value instead of price. Even moderate-sized accounts can own Priceline. If you are reading this article, it is likely you could afford to own a few shares at a net cost of $1,000-5,000.

If PCLN moves up, as expected, you will still net 25% or better even if you only purchase 1 to 5 total shares.

Disclosure: Short 1 PCLN Jan. 2017, $1,000 put

About the author:

Dr. Paul Price


Visit Dr. Paul Price's Website

Rating: 4.0/5 (6 votes)



Rdj1234 - 5 years ago    Report SPAM

Hi Dr. Price,

What do you think of buying leaps in a situation like this?

Thank You


Dr. Paul Price
Dr. Paul Price - 5 years ago    Report SPAM

Buying the LEAP calls out to 2017 is not cheap.

The $1000 strike had a bid - ask of $172.10 to $176.50 as of today's close.

Making up the stagger paid for time premium might consume a lot of the potential gain. Call buying could work but it is not my preferred play.

Brandchr - 5 years ago    Report SPAM

Hi Roger,

if you prefer buying LEAP calls, be sure to own calls with delta > 90%! In this case a 1$ up (or down) would result to 0.9$ up/down in your call. It simulates the stock itself in a good way.


Harney246 - 5 years ago    Report SPAM


The concept in selling puts is achieving a lower cost basis if the stock is assigned to you. Dr. Paul's position is equvalent to owning 40 shares of PCLN. I am getting this number by using the delta value of the option sold.

Using the market implied volatility of the option, 28%; the market is forcasting a 68.2% probablity that the PCLN price will be between 620 and 1420

My counter to Dr. Paul's position is before earnings implied volaility is typically higher and he might have received a higher relative premium by waiting to make the sale in a relatively higher implied volatility period. According to Earnings Whipers, the unconfirmed earnings announcement date is 2/19/15. The trade-off is a month of time decay vs. potentially selling an option at a higher relative implied volatitlity price.

Currently, PCLN implied volatility is trading at around 42% of its 52 week range.... or close to the middle of its range. Closer to the earnings announcement, implied volatiity might be trading closer to 80% of its implied volatility range.



Dr. Paul Price
Dr. Paul Price - 5 years ago    Report SPAM


I care much more about where the stock is trading versus what it is truly worth than I do about implied volatilty. I want to sell puts when underlying issues look poised to go up, or at least not go down.

PCLN already closed above $1047 and the prices I quoted are no longer available even though IV might be higher.


Dr. Paul Price
Dr. Paul Price - 5 years ago    Report SPAM

PCLN closed around $1,100 today, less than one month from when I wrote about it at $997.

Aporat - 5 years ago    Report SPAM

Hi, thanks for pointing this out. I sold the put a few weeks ago and boy with PCLN at 1220 today this has been quite rewarding.

I have been following your put suggestions for quite some time (you posted on other forums previously) and I have to say that you seem to be able to spot a good opportunity based on a stock's historical perspective. I do most of my trading now through quantative algorthims (I find it gets rid of all emotional factors) and I'd love to be able to collaborate with you....

Please leave your comment:

Performances of the stocks mentioned by Dr. Paul Price

User Generated Screeners

pascal.van.garsseHigh FCF-M2
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)