New Trade: Long Priceline (PCLN) & Short Demand Media (DMD)

By: ispeculatornew
Date posted: 03.26.2012 (5:00 am) | Write a Comment  (4 Comments)

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Last week turned out to be a rather volatile one with some good moves (long LinkedIn-LNKD, Long Apple-AAPL) but also bad ones (short Monster-MWW). The trade on Monster has nearly reached its stop loss after MWW basically confirmed it was open to selling part or all of its company. Unfortunately, M&A action is difficult to predict and it can sometimes go our way but sometimes it doesn’t… Hopefully that trade recovers. After last week’s action, the average trade has returned 1.47% so far this year, which is not bad (14% annualized return). It’s not great but not bad.

Just before getting into today’s trade, I wanted to discuss Apple which lost nearly 10% in one second on Friday after a glitch on BATS exchange. You could not tell because those trades ended up being cancelled so no harm right? I just want to remind everyone that such trades are not always cancelled. They are one more reason to always avoid market orders and also intra day stop orders.

Back to today’s trade as I am going long Priceline (PCLN), a stock that I have loved to trade but have been less active on recently because it has been rather expensive. Against it is Demand Media (DMD), a company I have often discussed (rarely in a positive way). Let’s get right into it by looking at the numbers for both stocks:

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Long Priceline (PCLN)

Clearly, Priceline (PCLN) has been a star no matter how you look at it.The company continues to bring strong growth to both revenues and profits despite being one of the huge players in the online travel. It has remained focused on its core strength and its strong brand. I do think that its forward looking P/E is fairly reasonable but when I compare it to Demand Media, it starts to look like a major bargain. I look at PCLN as being a very safe play for strong growth which makes it a safe play.

Short Demand Media (DMD)

Wonder why I think PCLN, a “safe play” is a good bet against DMD? Because I think DMD could do very poorly. It has a heavy reliance on Google for its traffic (and thus revenues) and some major changes to the Google algorithm could have a significant impact to DMD. Even if that turns out not to be the case, I think that DMD’s business model is still much more difficult to scale and the level of risk does not seem to be fully incorporated into the stock price. It relies heavily on online advertising which continues to show slower growth than other segments.

Disclosure: No positions on Priceline (PCLN) or Demand Media (DMD), this trade will be opened on Monday morning

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  1. Comment by Andy — March 27, 2012 @ 11:58 am

    I bought $PCLN on Valentine’s Day. Glad to hear you’re jummping on board!

  2. Comment by awake — March 30, 2012 @ 6:25 am

    don’t you think PCLN is overvalued at this point?

  3. […] a bit about the online travel industry in the past and have traded a few of those names with Priceline (PCLN) being a personal favorite. That being said, I’ve also disclosed how much I like Tripadvisor (TRIP). Today, I wanted to […]

  4. […] return now stands at 10%… not terrible but far from what I had just a few weeks ago. Being short Demand Media ($DMD) against Priceline ($PCLN) is a big reason why, I will be closing this trade on today’s opening! It currently stands at […]

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