uploads///Valuation

A Look at What’s Priced In to Ctrip.com’s Valuation

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Sep. 6 2016, Updated 8:04 a.m. ET

Current valuation

Ctrip.com (CTRP) is currently trading at a forward PE (price-to-earnings) multiple of 69x. This valuation is higher than its average valuation of 37x since April 2004.

Ctrip’s forward PE is also significantly higher than Priceline’s (PCLN) forward PE of 19.6x and Expedia’s (EXPE) 19.8x. TripAdvisor (TRIP) is trading at a multiple of 33.9x. These companies aren’t, however, strictly comparable.

Ctrip’s expects its margins to return to 20%–30% from its current -9%, representing a huge growth opportunity. The market expects Expedia’s EBITDA (earnings before interest, tax, depreciation, and amortization) to rise by 47% in 2016, then by 25% in 2017.

Rival PCLN’s EBITDA is expected to rise at a much slower rate of 15% in 2016, then by 17% in 2017.

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Our analysis

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

Many factors are in working in CTRP’s favor. China’s shift to a consumption-based economy from an investment-based economy is expected to drive growth in the Chinese online travel industry. Rising consumer disposable income will help to increase outbound travel, which is expected to be a major growth driver.

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

However, factors such as China’s slowing economy and ongoing disputes between airlines and online travel agencies could add uncertainty to the company’s future.

Investors should keep an eye on CTRP’s increasing leverage and its margin profile. At a weight of 4.7%, CTRP forms one of the top ten holdings of the CSI China Internet ETF (KWEB).

For a complete overview on CTRP, read Ctrip.com: What You Need to Know about China’s Online Travel Leader.

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