Mad Money's (CNBC) Jim Cramer, thinks this is the cheapest momentum stock in the market. He is talking about Priceline.
Even though the stock has posted a truly stunning 5 year gain of 1900% and even though shares trade for over $ 1000 each, Cramer says "this is the growth stock to own, right here right now". " I think PRICELINE is actually among the cheapest momentum stocks out there", insists the Mad Money, host.
"When you back out the billions of dollars of cash on the company's balance sheet, Priceline sells for just 19 times next year's earnings estimates, despite having a 20.7 % long-term growth rate", he said. Of course Cramer is a fundamental investor and he doesn't think an inexpensive stock is a "buy", simply because it is undervalued.
"Lots of stocks seem undervalued and then stay that way for ever", noted Cramer.
In the case of Priceline, Cramer sees the stock as well positioned to profit from a major shift underway in the travel industry, something he calls a long term theme.
In this case, the investable theme involves individuals as well as business travelers forsaking travel agencies and instead booking online.
Of course Priceline isn't the only online travel site, winning share away from travel agencies. Others stand to get market share, too. However, Cramer thinks of all the companies in the space, Priceline is the best to own. HERE IS WHY : 1.OVERSEAS GROWTH. "Priceline has huge European exposure", said Cramer "and I believe that's a big opportunity".
In fact Priceline gets 85% of its bookings from overseas, versus just 44% at EXPEDIA and a piddling 20% at ORBITZ.
2. HOTEL STRATEGY : "The vast majority of Priceline's revenues , come from hotel bookings (90% to be exact ), which is much more profitable than selling airline tickets", he explains.
The global lodging industry is extremely fragmented, whereas the airline industry has been consolidating rapidly. EXPEDIA, is only 75% hotels and ORBITZ is merely 50%.
3. PROFITABLE BUSINESS MODEL : "Priceline was the first player in the industry to adopt an agency business model, meaning they act as a broker between the hotel and the customer and then take a 15-20% cut of the transaction whenever someone books a room. This is much safer way to do business, than the merchant model, where you buy hotel inventory upfront, and then take on all the risk, even as you do get a larger cut if you end up selling the rooms, he says.
4. MOBILE STRATEGY : Priceline, has become the king of mobile travel reservations, thanks to its brilliant $1.8 billion acquisition of KAYAK, completed earlier this year.
All told, Cramer sees every reason for this stock to rally further......
