Beefed-up Priceline offers ticket to ride

Online travel giant Priceline Group (Nasdaq: PCLN) is firing on all cylinders, and Wall Street analysts have a broadly bullish opinion about its prospects – and unlike many such companies, its stock is attractively priced.

The company has increased sales at an impressive rate of 29.2 percent annually over the last five years. It benefits from a leadership position in international markets, which are often growing faster than the U.S.

Priceline operates mostly under the agency business model, allowing hotels and other service providers to list their own offers, paying the company a commission for every transaction. The company spreads its fixed costs over a rapidly growing revenue base as it expands over time, and this business model produces big fat net profit margins above 25 percent.

Priceline’s fans like its strong Booking.com hotel booking business (featuring more than 525,000 hotels in 205 countries), its purchase of online restaurant reservation platform OpenTable, and the fact that it’s growing its market share globally.

With a forward-looking P/E ratio near 19 and an expected growth rate of 25 percent, Priceline’s stock is a promising buy. (Don’t let the recent price tag of roughly $1,100 per share scare you – you can always buy just one share.) Wall Street analysts recently had a median price target of $1,350 for the stock. (The Motley Fool has recommended and owns shares of Priceline.)

Ask the Fool

Q: What’s a “highly capitalized” company? – H.P., Greensburg, Pennsylvania

A: It’s asset-heavy, loaded with cash and other assets, some of which could be converted into cash. Cash is good, but if it’s just sitting around unused, that’s not ideal. In fact, if a company has nothing better to do with the money, it might as well pay some out to shareholders as a dividend, or buy back (and essentially retire) some shares.

It can be good for financial companies to be highly capitalized. When a bank, for example, is undercapitalized, it’s in danger of insolvency if it can’t meet withdrawal demands or other financial obligations.

Q: Are there any special tax breaks for military personnel? – E.S., West Salem, Wisconsin

A: Yes. They include the exclusion from gross income of combat pay and some other allowances and payments, the ability to use combat pay as earned income for the Earned Income Tax Credit, the deductibility of certain travel expenses for reservists, the deductibility of certain moving expenses for active-duty personnel moving to a new permanent station, the ability of families of fallen soldiers to take advantage of tax-favored accounts, and tax forgiveness for those who die in active service in a combat zone or from an injury received in a combat zone.

Those serving in a combat zone and certain others can also have their tax deadlines automatically extended. IRS Publication 3, “Armed Forces’ Tax Guide,” will tell you more.

The Soldiers’ and Sailors’ Civil Relief Act of 1940 offers more protections, such as some protections from eviction, the delay of civil court actions, and reduced interest rates on mortgage loans and credit card debt.

Learn more at defense.gov, irs.gov, defense.gov/specials/ relief_act_revision, and fool.com/taxes.

My dumbest investment

Years ago, I bought stock in two companies that I expected would perform well over a long period. I decided to sell covered call options on my shares, aiming to profit before they advanced. But they unexpectedly advanced quickly, and whoever bought my calls made a killing off my near-term miscalculation. I learned to avoid the options game, even the selling of contracts (where the odds are in your favor). – N.G., San Diego

The Fool responds: Options are risky if you don’t understand them, because you can lose your entire investment in them. (Remember that a “call” option is a contract that represents the right to buy a stock at a set price by a set date, while a “put” option is a contract that represents the right to sell a stock at a set price by a set date.)

Most options do expire unexercised, benefiting only the investor who sold them. Selling calls on shares you already own is a less risky move, but as happened with you, if the stock surges before the option expires, you must surrender your shares and forfeit any further gain in them.