Priceline reported an earnings beat on 2/27, but investors have reacted to the news in a tepid manner. Shares opened at 710, but sold off the rest of the day, and as of today, 2/28, PCLN has already given up all of the gains from the earnings news, hovering at $681, close to the closing price the day before earnings were released of $679.

Here’s Zack’s summary of the earnings news:
Priceline’s top line, bottom line, and gross margins are growing at a healthy clip still so there are definitely reasons for more optimism in the future. PCLN’s price/earnings to growth ratio is very reasonable at 1.39 compared to its peers (TRIP 2.15, EXPE 2.25).

The sell-off in the shares, in my opinion, is pure profit taking and lots of traders selling at the post earnings $710 level, which a large supply of calls had previously been accumulated in prior to the earnings release, and prior to the sell-off on Monday that brought all global markets down, and forced PCLN down with it. PCLN had been holding in the 690-710 range about a week prior to earnings, when speculators placed the majority of their bets on the earnings move.

Options implied volatility in the stock dropped, as it usual does, after the release of the earnings news, so we are now presented with an excellent opportunity to go long option premium. Also take note in my chart below, that previous post earnings drawdowns usually bottomed out when implied volatility dropped down to around the level that IV is currently registering (25-26%).

This trade has a 3-4 month time horizon, selecting the May $650 calls, with a delta of .65. PCLN will report earnings again sometime in May (probably the first week), and I am expecting for a move back up above $700 as May earnings approach.

Chart courtesy Finviz. Click to open larger.

Additional Image Provided by Terrence:

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