Is Priceline (PCLN) a ticking Time Bomb?

In the past year, Priceline (PCLN) shares have completely obliterated Expedia (EXPE) shares in price gain. PCLN is up a massive +135% while rival EXPE has only managed +11.83%.

The reason why Priceline shares are up so high is obvious, it has to be from the Shatner ads, right?  

Wrong. Priceline has managed to become the new “darling” of Wall Street in the last year. You could say the same of Apple (up 133% in 2007) and Amazon (up 135% in 2007.  Both are great companies, but have since fallen 40% and 21% respectively in 2008.

But Priceline has managed to pull of a 10% gain so far in 2008. What gives?

Management has a history of great execution. But even great execution is going to prove to be more difficult in the coming years with the recession and energy price concerns.

Crude oil will most likely remain above $100 in the coming years.  This will force the airlines to continue to raise ticket prices and pressure margins for Priceline. The looming Recession will further exacerbate the problem with vacation cancellations and postponements.

I believe the analysts have it right this time:

Priceline's strength is fully reflected in its stock price, warns
Stifel's Askew. "We choose to remain on the sidelines for now," wrote
Askew, who has a hold opinion on the stock. 

For my money, I would much rather pick up the largest online travel company of the them all, Expedia (EXPE) which trades at 14.66 Forward P/E compared to Priceline’s 20.01. 

It’s my opinion that Priceline is a ticking time bomb, but when will it go off? You be the judge of that.

Disclaimer: The Author does not own a position in any of the stocks mentioned at the time of this article.

Article written by Eric Cheshier

Co-Founder of theStockMasters.com

If you liked this article, Eric Cheshier also contributes to the Master Picks Newsletter and the Quant Method , only available at WallstNewsletters.com.