Margins matter. The more priceline.com (Nasdaq: PCLN) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong priceline.com's competitive position could be.

Here's the current margin snapshot for priceline.com and peers.

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 priceline.com

57.6%

22.1%

21.6%

 Ctrip.com International (Nasdaq: CTRP)

77.5%

34.4%

33.5%

 Expedia (Nasdaq: EXPE)

79.3%

22.0%

12.7%

 Orbitz Worldwide (NYSE: OWW)

80.6%

8.3%

(0.9%)

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Unfortunately, that chart doesn't tell us much about where priceline.com has been or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the last fiscal year, and last fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for priceline.com over the past few years.


(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 53.9% and averaged 42.6%. Operating margin peaked at 20.1% and averaged 11.7%. Net margin peaked at 20.9% and averaged 13.4%.
  • Fiscal year 2009 gross margin was 53.9%, 1,130 basis points better than the 5-year average. Fiscal year 2009 operating margin was 20.1%, 840 basis points better than the 5-year average. Fiscal year 2009 net margin was 20.9%, 750 basis points better than the 5-year average.
  • TTM gross margin is 57.6%, 1,500 basis points better than the 5-year average. TTM operating margin is 22.1%, 1,040 basis points better than the 5-year average. TTM net margin is 21.6%, 820 basis points better than the 5-year average.

With recent 12-month-period operating margins exceeding historical averages, priceline.com looks like it is doing fine.

If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. By keeping an eye on the health of your companies' margins, you can spot potential trouble early, or figure out whether the numbers merit Mr. Market's enthusiasm or pessimism. Let us know what you think of the health of the margins at priceline.com in the comments box below. Or, if you're itching to learn more, head on over to our quotes page to view the filings directly.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. priceline.com is a Motley Fool Stock Advisor pick. Ctrip.com International is a Motley Fool Hidden Gems selection. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.