Priceline Is a Good Investment Opportunity, Despite Share Price Plunge

Priceline Group (PCLN) reported earnings on Wednesday, which beat Wall Street's expectations. But the stock fell more than 7%.

Analysts were expecting revenue of $2.12 billion and earnings per share of $9.65. Priceline reported revenue of $2.15 billion and EPS, after adjusted for one-time items, of $10.54 for the first quarter of 2016. Revenue was up more than 16.7% while EPS jumped more than 30%.

To be sure, Priceline's guidance for the next quarter will lag year-ago numbers. Last week, the company forced out its CEO over an apparent misconduct. Moreover, the company is experiencing heightened competition.   

But Priceline remains a good stock to own. Amidst an upswing in the leisure and travel industry, the company is still seeing solid demand for its services. Priceline also has a favorable price-earnings ratio. 

In its first quarter press release, management told investors second-quarter earnings would likely be lower than they were a year ago. Priceline's C-suite members believe earnings per share will come in within a range from $11.60 - $12.50. Last year during the second quarter, Priceline reported EPS of $12.45.

Management said that the timing of certain holidays and higher promotional costs were reasons the company would see its first EPS decline. Furthermore, other growth metrics still look strong for Priceline. The company was still gaining market share or holding its lead in all of its segments. Management believes next quarter's weak earnings will be a temporary issue.

Priceline's main competition, Expedia (EXPE) - Get Report performed slightly better based on a few metrics during the first quarter. Priceline saw room-night stays jump 31% compared to the same quarter last year, but Expedia had the same metric increase by 37%. Gross bookings for the quarter grew 21% for Priceline when compared to last year, but Expedia reported a 32% increase.

Another issue investors need to consider is the future of its CEO. Jeffrey Boyd became Priceline's interim CEO last week after Priceline's board forced Darren Huston to resign following an internal investigation into a personal relationship Huston had with an employee. Boyd was Priceline's President and CEO from 2002 until 2013. But predicting who will assume the CEO post on a non-interim basis, not to mention the direction of the company, are difficult to predict.

The next CEO will need to address how it combats Airbnb. Priceline and Expedia have been a duopoly. Airbnb is changing that and attracting the next generation of customers, Millennials.

Meanwhile, the travel and leisure sector is showing upward momentum. The PowerShares Dynamic Leisure and Entertainment Portfolio has gained 15.61% over the last three months.

Priceline remains a healthy company. Buying it today should produce a strong return for investors. Wednesday's $100 or 9% decline offers a buying opportunity, especially considering that guidance is within range of what the company posted last year. The current decline is a massive over-reaction by Wall Street.

Based on its current price-to-earnings (P/E) ratio of 25 and its forward looking P/E of just 15, Priceline's stock offers good value.

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This article is commentary by an independent contributor. At the time of publication, the author held positions in Priceline.