What’s Priced into Ctrip’s Valuation before 3Q16 Earnings?



Current valuation

Ctrip.com International (CTRP) is currently trading at a forward PE multiple of 56.2x. This is higher than its average valuation of 34x since January 2008. It’s also significantly higher than Priceline’s (PCLN) forward PE multiple of 19.8x and Expedia’s (EXPE) multiple of 20.4x. TripAdvisor (TRIP) is trading at a multiple of 33.2x. These players are, however, not strictly comparable.

Ctrip’s EBITDA (earnings before interest, tax, depreciation, and amortization) is expected to fall 189% in 2016. The market is expecting Priceline’s EBITDA to grow 15.8% in 2016 and 16.5% in 2017. Rival Expedia’s EBITDA is expected to grow at a much higher rate of 47% in 2016, and then to decelerate to 24% growth in 2017.

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Our analysis

Valuation multiples help us understand the market’s perception of risk, growth, and investors’ willingness to pay. Investors seem to be optimistic about Ctrip’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. This industry consolidation is also expected to help restrict competition and will likely keep the pricing wars that were in play for the past few years in check while improving margins.

But Ctrip still has a long way to go before it cracks the global travel market, and so investors should keep a close eye on its increasing leverage, which will make the stock more volatile.

Notably, investors can gain exposure to Ctrip.com by investing in the First Trust NASDAQ-100 Ex-Technology Sector Index Fund (QQXT), which invests 1.5% of its total holdings in Ctrip.com.

For a complete overview of CTRP, check out Market Realist’s series Ctrip.com: What You Need to Know about China’s Online Travel Leader.


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