The recent results surprised on the upside by a wide margin. PCLN represents a top-tier holding in any long-term portfolio.
The next time this stock takes off, the nature and extent of the rise may prove as astounding as the current weakness. Recall that the stock reached a high above 160 about a year ago.
Now that they have integrated quality control in a systematic fashion, they have effectively answered the wishes of the consumer.
I believe that the unanimous bullish opinion on this stock could ironically be hurting its near-term performance. Perhaps most people have already bought based on the expectation for further rises. Who would dare short such a stock, which could fly up 10 or 20 points on a good day or too?
(Shorting a stock with the long-term running against you represents a reliable route to ruin. In the short-term, it bears a close resemblance to gambling with unfavorable odds.)
What this does is to make it difficult for short-term demand to push up share prices, except for temporary bursts. The short-covering may be limited; likewise, purchases brought about by transition to more optimistic predictions play a small role. As evidenced by the muted response to positive news, if perceptions are already high, very little new buying may be generated even as good results continue to flow. Trend followers chasing intra-daily or multi-day rallies can drive the stock higher for a while. But this hot money may tend to leave just as quickly.
In the long-term, the situation will probably change dramatically. More buying will be brought about by consistent improvements in results and ongoing upward surprises. When they achieve profitability in 2001, the investment may attain a greater perception as a safe holding and may stage a take-off similar to that experienced by YHOO as they evolved into black figures. This will naturally generate greater demand for PCLN shares, with patient money flowing in.
The plain truth is: you don't know what will happen in the short-run. There seems little point in trying to predict it. The greatest risk may be to miss out on the major upward move that will occur with 95% probability at some time over the next 2 or 3 years. We don't know when. We don't need to know when. Time is on our side.
When a substantial number of participants tend to gamble on the daily and intra-daily moves in a stock, predictability fades. PCLN hit an intra-daily low of near 26 last summer in the wake of the Russian crisis. It could happen again, but the probability is now lower.
As another interesting angle, if economic recession does begin to manifest itself, priceline.com's business may actually benefit. During such times, the focus of the consumer may switch to saving, leading to more frequent use of the Name Your Price strategy.
Short-term: Heads, you win. Tails, you lose.
Long-term: Core holding, multiple splits. Gains over 500% feasible within 3 years. NASDAQ-100?
Still, caution is advised. The game has become harder. Legends such as Tiger's Robertson and Quantum's Druckenmiller have just been taken out.
Risk has increased dramatically, in the short-run.
In the long-run, time will probably tell a different story, as it often does in the stock market, but primarily for that handful of successful players like PCLN.
Good luck,
JM |
