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Spokane, Washington  Est. May 19, 1883

The Motley Fool

The Motley Fool

The Motley Fool Take

If you’re looking for a strong grower at a reasonable price, consider online travel giant Priceline (Nasdaq: PCLN). In Priceline’s last quarter, gross travel bookings - the total dollar value of travel services purchased by customers - rose 7 percent year over year, totaling $15 billion. (In currency-adjusted terms, that would have been a 22 percent jump.)

The headwinds the company has been facing, such as unfavorable currency exchange rates and fears of terrorism keeping some travelers home, are not likely to be permanent ones.

Meanwhile, Priceline is aggressively investing in marketing and advertising, while working to expand internationally. It recently made its first investment in populous Brazil with a $60 million stake in a hotel-booking startup there. Another recent deal is with OnStar, to permit drivers to book hotel rooms while on the road. These investments can drive revenue growth for years into the future — and can help Priceline battle competitors.

Priceline is growing briskly, with revenue having roughly doubled in four years and net profit margins topping 25 percent. Its brands include Booking.com, priceline.com, agoda.com, KAYAK, rentalcars.com and OpenTable. Booking.com’s platform has more than 820,000 hotels and other accommodations in 220 countries as of the third quarter, a year-over-year increase of 38 percent.

Long-term investors stand a good chance of being rewarded very well by Priceline. (The Motley Fool owns shares of and has recommended Priceline.)

Ask the Fool

Q: What is stock dilution? - T.N., Greenwood, South Carolina

A: It’s what happens when a company issues additional shares of its stock (via a “secondary offering”). That decreases the value of existing shares, because the more shares there are, the smaller the ownership stake each of them has. In a simplified example, imagine owning one of a company’s three shares. If it issues a fourth share, you go from owning a third of the company to a quarter of it.

Additional shares aren’t necessarily bad. Sometimes shares are issued to raise money used to generate additional sales and earnings — perhaps by acquiring another company or building another factory. If so, then economic dilution might not occur.

Some new shares do destroy company value, though. This can happen, for example, if shares are used to finance a merger that fails to meet expectations, or to overpay a CEO who hasn’t helped the company grow and prosper.

Q: Is it worth buying renters insurance? - G.S., Wolfforth, Texas

A: It’s a good idea to do so. Your landlord’s insurance will typically just cover the building itself, and not your personal property — and your property’s value is probably greater than you think. Renters insurance can protect you against theft or damage, offer some personal liability protection, and maybe even pay for temporary housing if your apartment is damaged.

When buying it, you specify the total dollar value of property you want to insure. Some policies will pay you enough to cover the depreciated value of various items at the time of loss, while others will cover replacement costs. The latter is much better. Renters insurance is often inexpensive, too. Learn more at bankrate.com/insurance.aspx and iii.org.

My Dumbest Investment

My dumbest investment was in NewLead Holdings. I bought 300 shares and then hung on after it had a 1-for-10 reverse stock split, hoping the company would turn things around. - Z., online

The Fool responds: Companies undergoing reverse splits are often troubled. With a regular stock split, shareholders get more shares of a stock, and the stock price is adjusted downward accordingly. If you own 100 shares of a $50 stock and it splits 2-for-1, you’ll end up with 200 shares of the stock, and its price will suddenly be $25 per share. Your overall stake remains the same - 100 times $50 or 200 times $25. They both total $5,000. It’s a way for the company to reduce its share price a bit, to make shares more affordable for some.

Reverse splits are typically executed in order to prop up a share price. If a stock is trading for less than $5 per share, that’s penny stock territory, and it can make the stock look risky. If a stock trading at $3 per share has a 1-for-10 reverse split and you own 100 shares, you’ll end up with just 10 shares, and their price will suddenly jump from $3 to $30 per share. The stock will look more respectable, but the company won’t be any healthier.

You should have held on to your shares only if you were confident the company would recover.