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Ctrip’s Valuation: What’s Priced In?

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Aug. 12 2016, Updated 3:04 p.m. ET

Current valuation

Ctrip (CTRP) is currently trading at a forward PE (price-to-earnings) multiple of 57.8x. Ctrip’s valuation is higher than its average valuation of 34x as measured from January 2008 to the present.

The company’s valuation is also significantly higher than Priceline’s (PCLN) forward PE multiple of 19.5x and Expedia’s (EXPE) multiple of 19.7x. TripAdvisor (TRIP) is trading at a multiple of 33.5x. These players, however, aren’t strictly comparable.

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Ctrip’s EBITDA (earnings before interest, tax, depreciation, and amortization) is expected to fall by 128% in 2016. The Market is expecting Priceline’s EBITDA to rise by 14.8% in 2016 and 16.5% in 2017. Rival Expedia’s EBITDA is expected to rise at a much higher rate of 47% in 2016, then it’s expected to slow to 24% in 2017.

Our analysis

Valuation multiples help us to understand the Market’s perception of risk, growth, and investors’ willingness to pay. Investors seem to be optimistic about Ctrip.com’s ability to grow in the future.

The Chinese online travel industry is set for another year of tremendous growth on the back of increasing travel demand. Growing consumer disposable income is expected to bode well for the industry despite the overall economic slowdown.

Industry consolidation is also expected to help restrict competition. This will keep in check the pricing wars that have been in play for the past few years and help to improve margins.

However, Ctrip still has a long way to go before it cracks the global travel market. Investors should keep an eye on its increasing leverage, which could make its stock more volatile.

CTRP forms 1.5% of the holdings of the iShares MSCI China ETF (MCHI). For a complete overview on CTRP, read Ctrip.com: What You Need to Know about China’s Online Travel Leader.

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