Seems like the perfect time really. After closing out 3 trades last week and 1 more this morning, we are now ready to take on a few new positions. One of the great opportunities we had been discussing in our premium newsletter was the mispricing between Priceline and Travelzoo. A trade that already looked promising turned even more so last when when Priceline’s stock tumbled after announcing results that were up to expectations, but lowered forecasts, which came as a surprise to analysts.

Is Priceline suffering more these days? Absolutely, it does business in a sector that is hurting right now, travel. With a shaky economy, travelers have been pulling back on their spending and looking for better deals. Thankfully, Priceline is specialized in such opportunities and is well positioned to increase its market share. As if things were not difficult enough, Priceline is now dealing with mass travel problems to Europe because of the volcano ash chaos.  All of these have certainly hurt Priceline’s outlook, no doubt about it.  What better way to trade to go long on Priceline than doing so against another online travel company?

But Priceline is not the only one…

I find this trade similar to the one that was done on Monster WorldWide (MWW) and Dice Holdings (DHX). It seems as though sometimes the industry leaders’ stock prices adjust more quickly to news and in this case, the smaller player is Travelzoo (TZOO).  Travelzoo is a smaller online travel company that has been fighting to gain some market share in the very competitive online travel sector. The company is promising and there is no doubt that it will continue to grow. But right now, growth is not as important as you might think…

Which one is the growth stock here?

Just take a look at the table above. Even though Priceline is so much bigger and a much more important player in the industry, it is growing faster than Travelzoo in terms of revenues, traffic (see chart at the bottom of this post), and even its brand continues to gain more value faster than Travelzoo. If that is the case, there is no reason in my opinion to have Travelzoo trading at a higher P/E ratio but that is exactly the case right now.  Obviously, this trade would not fit all technical traders because clearly the pattern for Priceline is going downward right now. But a quality company like Priceline will fight its way back and as you can imagine, I don’t think Priceline is the only online travel company that is reducing its revenues and growth forecasts right now, far from it.