Analyzing Ctrip’s Valuation through 3 Key Multiples


Dec. 16 2015, Updated 8:04 a.m. ET

Determining Ctrip’s peers

We’ll wrap up this series by discussing what companies you can compare to Ctrip and what multiples you can use to value Ctrip.

As we discussed in the earlier parts of this series, Ctrip is the leader in the Chinese online travel agency market. Since the dynamics here are significantly different from the corresponding US market, we can’t compare the company to US majors like Priceline (PCLN), Expedia (EXPE), and TripAdvisor (TRIP).

The closest we can get to Ctrip are Chinese players like Qunar (QUNR), eLong (Long), and Tuniu (TOUR).

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The forward PE multiple

The PE (price-to-earnings) ratio is one of the easiest ratios to calculate, so it’s one of the most widely used valuation ratios. Investors use it to determine how much a share is worth. It describes how much investors are willing to pay for a company’s earnings.

Currently, CTRP is trading at a forward PE of 84x, which is lower than eLong’s 98x and significantly higher than Qunar’s 20x.

However, you shouldn’t use PE if a company has volatile earnings—as is the case for CTRP. Also, it has other drawbacks. It doesn’t not take into account the company’s capital structures. Plus, earnings are highly prone to manipulations. With the forward PE ratio, an added disadvantage is errors relating to analyst estimates.

The EV/sales multiple

EV/sales (enterprise value to sales) is another important valuation ratio. It tells us how much investors are willing to pay for a company’s sales. It’s useful for valuing young companies that aren’t profitable due to the huge investments required in the initial phase.

CTRP is trading at a forward EV/sales multiple of 9.7x versus QUNR’s 6.5x, TOUR’s 0.45x, and LONG’s 2.8x.

However, the ratio doesn’t look at the company’s profit-making ability. We can overcome this limitation using the EV/EBITDA ratio.

The EV/EBITDA multiple

An EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) ratio helps overcome most disadvantages of a PE ratio. It’s capital structure–neutral. Also, the EV/EBITDA ratio is better since it values the worth of the entire company. EV/EBITDA gives a firm multiple, whereas a PE ratio gives an equity multiple.

CTRP is currently trading at a forward EV/EBITDA multiple of 43.5x.

The drawback of the ratio is that shareholders don’t have full control over the company’s capital structure. Also, EV/EBITDA is pre-tax, so if a company has a lower tax rate, then it will tend to have a higher valuation.

Ctrip International (CTRP) is the largest holding of the Golden Dragon Halter USX China Portfolio (PGJ), accounting for 5.6% of its portfolio.


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