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Priceline: Can A Stock Get Too Expensive For Its Own Good?

By Xavier Brenner

priceline

The stock price of Priceline.com (PCLN), that inveterate dot.com survivor, is approaching the $1,000 mark. That’s the highest price in the S&P 500 universe. It adds up to a remarkable turnaround at the online travel service known for its  wacky advertising featuring William Shatner. The strong market performance raises an intriguing question: Can a stock become too expensive for its own good?

PCLN Chart

PCLN data by YCharts

Before getting into that discussion, some perspective is in order regarding Priceline. David Gaffen points out the explosive comeback of Priceline, which closed at $928 on August 7, is actually less impressive when one considers the company’s history or reverse splits:

One looks at a $928 share price and would think, “Wow, that’s got to be an all-time high.”But of course, it isn’t. The stock hit a (split-adjusted) $990 a share in April of 1999 before falling to a low of $6 or so a share in October of 2002. Again, this is after a 1-for-6 reverse split in June 2003, so the shares then were more like $1, and it was trying to avoid a delisting. Of course in 1999 that would have made the shares worth more like $160, but just the same, that’s a smile out of a horror movie or something.

The equity market is of course full examples of stocks in nosebleed territory on a per share basis. Berkshire Hathaway A-class shares (BRK.A) closed at about $175,000 per share earlier this week. (It’s not a S&P 500 component stock.) You might argue that’s an extreme case, given that Warren Buffett has never allowed the stock to split, in the effort to attract only long term shareholders and avoid speculators. (Berkshire’s B-class shares BRK.B did in fact split on a 50-to-1 basis back in early 2010 to enable an acquisition – the Baby Bs now trade at $116 compared to about $3,500 a pop before the move.)

The Washington Post Company (WPO), which made headlines of its own by selling its flagship newspaper to Jeff Bezos, fetches about $588 per share. Other companies such as Autozone (AZO), Mastercard (MA), and Apple (AAPL) trade in the hefty $400 to $650 per share range. Google (GOOG) commands about $890 a share.

Here’s a full full list of the S&P 500 constituents by price and other metrics.
WPO Chart

WPO data by YCharts

To split or not to split is the stuff of a long running debate among traders, analysts and financial academics. Stock splits often occur during flush times and big run-ups in market capitalization, so they can have a big positive psychological impact on existing investors’ sentiment.

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