Short-sellers and hedge funds may be shadowy, but sometimes they're the smartest guys in the room. They've done their homework, and they're willing to bet their capital against the crowd -- an investing strategy that can be as lucrative as it is contrarian.
On Motley Fool CAPS, the 180,000 member-driven investor community where informed opinion is translated into stock ratings of one to five stars, we also have investors who find the chinks in a company's armor and correctly call its fall. We call them "Underdogs" if they've earned 100 or more CAPS points by correctly predicting that one or more stocks would underperform the market.
Today I'm looking at online travel agent priceline.com (PCLN +0.38%), which is down 17% from the highs it hit earlier this year, but is nearly 50% above its lows and carries a surprisingly low two-star CAPS rating. The financial collapse in Europe had many believing travel on the continent would fall apart as sovereign nations descend into chaos, but when hotels can't sell their rooms and planes can't fill their seats, by and large they turn to Priceline to do it for them.
It's been an up-and-down ride, so if there are investors who've scored big by correctly predicting which stocks will fail, it may be worth our while to check out those they think will succeed. CAPS All-Star akaprimo is one who's earned the underdog moniker but predicts the company will still fly high.
priceline.com snapshot
|
Market Cap |
$32.2 billion |
|
Revenues (TTM) |
$5.1 million |
|
1-Year Stock Return |
26% |
|
Return on Investment |
38% |
|
Estimated 5-Year EPS Growth |
21.3% |
|
Dividend and Yield |
N/A |
|
Recent Price |
$634.79 |
|
CAPS Rating (out of 5) |
** |
Source: FinViz.com. N/A = not available; priceline.com doesn't pay a dividend.
Of course, not every short sale goes as planned, which makes shorting a risky proposition. Stock prices can be irrational longer than you have money to stay in the game. And you don't want to end up with fleas by lying down with dogs, so do your homework.
Book 'em!
Unlike the U.S., the European hotel market is not dominated by chains like Marriott (MAR +1.28%), Wyndham Worldwide (WYN +3.14%), or Hilton, but rather it's an amalgamation of small, independently operated hotels. That means they don't have the same ability to arrange for bookings that their larger brethren do, and it means Priceline has the chance to continue spreading across the continent, where that same opportunity might not exist in the United States.
One of the fears surrounding the Priceline's growth potential was that it was reaching a saturation level in Europe, but its Booking.com site disproved that theory by recording 44% growth over the year-ago period, jumping to more than 245,000 hotels. Its growth is exceeding that of rival Expedia (EXPE 0.80%), leading analysts to surmise it's stealing market share from its rivals. And a partnership with Chinese travel site Ctrip.com (CTRP +3.91%) gives it a chance to expand into China, where it's hitherto hardly had a presence.
Although growth in hotel room nights is decelerating as expected (up 35.9% year over year, but that's down from the 39.1% achieved in the second quarter and the 47.4% pace hit last year), it remains above expectations.
Rent a wreck
Perhaps most exciting for Priceline is its acquisition of RentalCars.com (previously Traveljigsaw). The car rental business saw growth accelerate in the quarter, with rental car days growing 35%, well ahead of the last quarter's 29% rate, and indicating that the business could be a big additive to the top and bottom line in the future.
The OTA business is countercyclical. When times are good, hotels and airlines feel they can fill their rooms and seats without any help, so available inventory declines. But in depressed economic times, hotels and airlines flock to the OTAs for help.
Flying first class
Although there are more options these days for travelers to book fares and rooms today, as Google (GOOG +2.53%) grows its presence and HomeAway (AWAY +0.00%) develops its home-sharing niche, Priceline is still the primary beneficiary -- ahead of Expedia, Orbitz Worldwide (NYSE: OWW), and Travelocity -- because of its breadth of coverage.
The OTA has long been an underdog of expectations, but it's definitely no dog for your portfolio. Tell me in the comments section below whether you think priceline.com's stock is ready to take flight again.
