Priceline Seeks To Drive Growth With New Luxury Car Rental Service

NEW YORK (TheStreet) – Investors interested in Price line (PCLN) PCLN is likely focused on announcing the company last month that it agreed to acquire Open table (OPEN) OPEN, an online restaurant reservation service, for $ 2.6 billion.

They may be neglecting Priceline’s rapidly growing car rental business.

Late last month, Priceline launched a luxury and specialty car rental service called Fun Rides, which could be a big boost for the business. Priceline offers luxury cars such as BMW, Mercedes Benz and Cadillac as well as special cars such as the Mini Cooper and the Toyota (MT) – Get Toyota Motor Corp Sponsored ADR Report.TM Prius.

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Car rental is a rapidly growing part of Priceline’s business. First quarter unit sales, measured by the number of days of car rental, were up 24.6% from a year ago. This follows a strong 2013, when quarterly unit sales growth ranged from 27.5% in the third quarter to 46.3% in the second quarter.

With Fun Rides, which will have Priceline’s nominative pricing model, Priceline hopes to tap into a large pool of dissatisfied rental car customers. A business survey found that 51% of Americans are disappointed with their rental car while on vacation.

Priceline already operates Rentalcars.com, which it bought in 2003. Rental cars are the second largest part of Priceline after its hotel reservation business.

Investors will have to pay for the growth of Priceline. The shares are trading at 32 times rolling earnings, compared to 19.6 for the S&P 500 Index.

The stock closed at $ 1,246.77 on Tuesday, up $ 43.77, or 3.6%. Over the past decade, it has climbed nearly 50 times, from about $ 25 a share, the Nasdaq Composite the index just more than doubled during this period.

But by some measures, the stock is reasonably priced. It’s trading at 19 times the company’s expected earnings for 2015, and its PEG (price / earnings ratio divided by expected earnings growth rate) is 1.18, which isn’t a particularly high number. .

So investors might want to wonder if Priceline’s growth – driven by its car rental business – makes the company’s shares still attractive at current levels.

At the time of publication, the author did not hold any positions in the mentioned stocks.

Follow @chriskatje

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial team.

TheStreet Ratings team rates PRICELINE GROUP INC as a purchase with a review score of B +. TheStreet Ratings Team has this to say about their recommendation:

“We are evaluating PRICELINE GROUP INC (PCLN) as a PURCHASE. This is driven by some big positives, which we believe should have a bigger impact than any weakness and should provide investors with a better opportunity for performance than most of the stocks we cover. The strengths of the company can be seen in multiple areas, such as its robust income growth, its largely solid financial position with reasonable debt levels by most measures, strong stock price performance, an impressive record of earnings per share growth and expanding profit margins. the company has low operating cash flow. “

The highlights of TheStreet Ratings Team’s analysis are as follows:

• Revenue growth was above the industry average of 4.3%. From the same quarter a year earlier, revenue increased 26.1%. The company’s revenue growth appears to have helped increase earnings per share.
• Although PCLN’s debt ratio of 0.26 is very low, it is currently above the industry average. At the same time, the company maintains a rapid ratio of 5.14, which clearly demonstrates its ability to meet short-term cash flow needs.
• Driven by its strong earnings growth of 31.30% and other important driving factors, this stock has jumped 48.57% in the past year, outperforming the rise of the S&P 500 during the same. period. As for the future course of the stock, although almost any stock may fall as part of a general market downturn, PCLN should continue to advance despite the fact that it has already recorded a very good gain over the course of the market. of the last year.
• PRICELINE GROUP INC improved its earnings per share by 31.3% in the last quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We believe this trend should continue. During the last fiscal year, GROUPE PRICELINE INC increased its net income by earning $ 36.01 against $ 27.71 the previous year. This year, the market expects improved earnings ($ 52.31 vs. $ 36.01).
• GROUPE PRICELINE INC’s gross profit margin is currently very high, reaching 85.67%. It increased compared to the same quarter of the previous year. At the same time, the net profit margin of 20.17% significantly outperformed the industry average.