Wednesday, August 20, 2014

Priceline Group (PCLN) Prepares Third Breakout Attempt out of Cup and Handle Base

The Priceline Group (PCLN) advanced over 80% since breaking out of a fifteen month cup and handle based in May 2013 and over 1,000% since the bear market bottom in 2009. The stock broke out of a later stage cup and handle base on August 4th in volume 88% above average and again on August 11th in volume 174% above average. The left side of the base is a bit wild and the relative strength line is in a downtrend, but there are several signs of support on the daily and weekly chart (high volume reversals, reverse churning, and tight closes). The stock has pulled back to the breakout level again and should be considered on a new breakout attempt.

Quarterly and annual sales and earnings growth are expected to grow 22%+ for at least the next three years, and have grown over 25% over the last three. Margins are at their highest levels historically and expanding, and return on equity has been consistently north of 30%. Expanding margins and strong sales growth have helped the company beat earnings by an average of 7.7% over the last four quarters.

Positions can be initiated anywhere between here and the $1,300 handle high breakout. Protective stops should be placed below $1,250. Take the wild and loose, potentially late stage consolidation into account when managing the trade. Limit losses and expect improvement in price volume action as the stock advances or consider quick profit taking.

Our valuation model prices the stock around $1,591 over the next few months, and between $1,800 - 1,916 (39 - 50%) over the next twelve to eighteen months if the company delivers steady growth with expanding margins.

Full Disclosure: No Position

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