Priceline.com Inc. (Nasdaq: PCLN) has done a lot of things right over the past decade or so, and investors have rewarded it by sending its stock to more than $1,000 this year.
As impressive as that is, however, it begs the question of how much value is left in Priceline stock.
After all, Priceline.com, an online travel services company that allows travelers to shop for hotel rooms, airline tickets, and rental cars, has risen a whopping 80% this year alone.
Goldman also raised its 12-month price target to a lofty $1,500 from the previous $1,260 (PCLN closed Wednesday at $1,183.22).
And the truth is, Priceline has done astoundingly well by just about every metric. Its total bookings for the third quarter totaled $10.8 billion - up 38% from the same quarter last year. The key metric here is that 42% of that increase came internationally, while 17% of the increase came from the United States.
Few people realize that nearly 85% of Priceline's business is done overseas. More specifically, a vast majority of the company's growth comes from its Booking.com website that caters to those looking for hotel accommodations throughout the world, but primarily in Europe.
Even with the soft European economy, Priceline has thrived with help from the burgeoning Chinese middle class, as well as Russian tourists, who book hotels throughout Europe.
Thanks not only to Booking.com, but also the Priceline brand of Agoda.com, which primarily caters to travelers in Asia, the company has the entire globe covered.
But even this geographical diversity will not be enough to shield Priceline stock from a phenomenon that will soon threaten the company's profits.
A Rough Trip Ahead for Priceline.com (Nasdaq: PCLN) Stock
Despite all the positives, at the end of the day Priceline is still a travel stock, and the prognosis for that sector is mixed at best...
For PCLN, a lot is riding on the affordability of vacation and leisure travel. But the aftermath of the Great Recession has left many members of the middle class in America and Europe settling for lower-wage jobs. What's more, societies in general are falling deeper and deeper into debt.
Before long, these financial pressures will reach a breaking point, and leisure activities will have to take a back seat to putting food on the table.
What happens to Priceline then? Will the Chinese and Russian traveler pick up the slack?
I don't think so. But there's an even bigger reason for concern.
The huge run-up in the Priceline stock price has set the value of the company at a breathtaking $61 billion!
This Internet-based travel company is now valued higher than another, albeit different type of "travel" company - General Motors (NYSE: GM), at $54 billion. As odd as that sounds, it tells us a lot about how far out of whack the Priceline stock price has gotten.
In order to reach the Goldman price target, Priceline needs everything to go as planned or better, which as we know doesn't happen often in the business world.
Admittedly, there's still a chance Priceline stock reaches those targets on sheer trading momentum, making those very crafty in-and-out momentum traders the benefactors.
But as a long-term investor, I can't take that risk. For one thing, the Internet has a way of bringing forth new competitors when you least expect them.
Plus, the competitors currently in place, Expedia Inc. (Nasdaq: EXPE), Orbitz Worldwide Inc. (NYSE: OWW), and Google Inc. (Nasdaq: GOOG), are no slouches. They're not going to sit idly by and watch Priceline totally dominate the industry without fighting back.
That makes Priceline stock a SELL.
Before I go, let me give you a little travel tip that also illustrates another reason why I think Priceline stock will have to reverse course: When booking a hotel through Priceline.com or its family of websites, check the hotel's own website first. Often you will find a better deal there.
As more people figure out they can save money by cutting out the Priceline middleman, the company will find itself in a fix even Captain Kirk couldn't escape.
About the Author: David Mamos brings nearly 15 years of analytical experience to the table, with a background ranging from big-picture fundamental analysis to highly technical trading decisions. He began his career working as a financial advisor with Royal Alliance in 2001 and helped clients with portfolio management as well as buy-sell decisions before transitioning to the development, implementation, and execution of trading strategies for aggressive investors.
Don't miss our other stock profiles: Corning: Missing Out on the Revolution It Helped Launch; Why The Boeing Company (NYSE: BA) Stock Will Soar to New Heights