China's Ctrip.com: Great Growth Potential

I look around to see what history is happening in the world now and I see above all the rapid development of China. While here in the U.S. we struggle to regain positive economic growth, this year China’s economy will grow 8% … maybe more.

Which means China is a great place to find growth companies!

One of my long-term favorites in the country is Ctrip.com (CTRP), which has the country’s biggest travel-related Web site. The company’s revenues were $99 million in 2006, $160 million in 2007 and $215 million in 2008. Earnings were equally impressive.

The stock came public in 2003 and had a great run into 2008, with the stock’s progress mirroring the company’s. But when the global recession took hold, the stock plummeted from 71 to 16, par for the course for a fast-growing highly respected enterprise.

Thursday, with the economy back on the rails and expectations for Ctrip’s growth once again healthy, the stock is working hard to recover lost ground.

In fact, a month ago, when the stock was trading at 38, Paul Goodwin, editor of Cabot China & Emerging Markets Report, made it his featured recommendation, writing, “At the heart of Ctrip.com’s success is its excellent Web site. If you go to http://www.ctrip.com, you will arrive at a page that asks you to choose your language, with the choices being Mandarin, Cantonese and English. The layout is clean and easy to understand, with tie-ins to packages, car rentals and the company’s award-winning call center. China has developed to the point at which it doesn’t make a lot of sense to describe a company as “the Chinese Google” or the Chinese anything. But looking at this Web site, you can see why Ctrip.com was known for years as “the Chinese Expedia.”

In the first quarter, the company saw revenues grow 21% to $58.6 million, while earnings climbed 19% to $0.32 per share.

After that report, the stock climbed as high as 48, but it’s now pulled back to 42, and I think it’s a decent buy here.

Comments

[Larry House:]

I wouldn't be so fast to say "the economy [is] back on the rails"--in China or anywhere else. You don't give the market cap, but it must be a micro micro to have such small revenues. I don't find this thesis convincing for a tiny company in China. I think it is a huge risk.

Jun 18 05:13 PM

[Larry House:]

I looked up the market cap--2.87B. Not micro. Opinions are all over the place on the stock, from strong buy to sell. It is already trading above the concensus price target. I advise caution.

Jun 18 05:18 PM

[Glen Bradford:]

I advise recommending cheaper companies. UTA for example. More bang for your buck.

But hey, paying a lot for premium is cool too.

Jun 19 12:01 AM

[Glen Bradford:]

I advise recommending cheaper companies. UTA for example. More bang for your buck.

But hey, paying a lot for premium is cool too.

Jun 19 12:01 AM

[H.J. Huneycutt:]

CTRP has little leverage and is selling at nearly 10X its book value. That begs the question, how are they earning such abnormal returns and how can that be undermined in the future by competition?

Their operating margins are nearly 31% which seems very high to me. Obviously, high operating margins are good, but they also might imply that it would be very easy for competition to move in on their turf.

Guess my biggest problem is that even with an 8% long-term growth rate and a 9% cost of capital, I still only come up with a quick DCF valuation of $48. That's a lot of growth already priced in.

On the positive side, I don't think I've encountered too many Chinese companies with as clear and coherent financial statements as CTRP. They even list comprehensive income on the Income Statement. Their growth has been pretty phenomenal, but I think I'd keep away from this one both on the long-side (too expensive) and the short-side (too many risks).

Jun 19 01:20 AM

[buyforeclos...:]

stock is so overbought..hell ALL Chinese stocks way overbought and the funds used to purchase them? LOANS! Greedy people ( Asians are incredibly greedy...money # 1 is a common theme there) and irrational excuberance will be painful when the correction comes... and come it will....exports off a CLIFF but nobody talks about that? Insane

Jun 29 03:02 PM