Priceline.com Inc (PCLN), Facebook Inc (FB): Is Barron’s Making a Good Call on the Travel Industry?

Barron’s is right. The online travel industry has very few if any barriers to entry, new competition continues to pop up, and margins are incredibly high. Barron’s specifically mentions Google Inc (NASDAQ:GOOG), the largest online search company whose search results showcase prices, destination details and a “booking button.” These things could be crippling to Priceline, Expedia Inc (NASDAQ:EXPE), Orbitz Worldwide, Inc. (NYSE:OWW), and the others, and Priceline’s acquisition of Kayak should serve as proof that search is crucial, due to Kayak’s presence in travel search. As a result, Barron’s made a good call based on valuation, market conditions, and future threats on an industry that is highly exposed.

Conclusion

I’m not suggesting that  Barron’s call is correct, or that margins will significantly decline for the world’s largest online travel company. However, one must acknowledge industry changes. Priceline.com Inc (NASDAQ:PCLN)’s price/sales of almost 7.00 and its operating margin of 35% are possible indications.

Like I said, I’m not saying to sell the stock or that it will fall, but I do view Barron’s article as a responsible way of assessing a stock. It is often difficult, as most analyst calls usually follow the trend of a stock, but retail investors should always try first to identify any potential negatives in a stock that is trending higher. If the upside exceeds the downside, then buy!

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Facebook Inc (NASDAQ:FB) and Priceline.com Inc (NASDAQ:PCLN). The Motley Fool owns shares of Facebook and Priceline.com.