Shares of Chinese travel service provider Ctrip.com International Ltd (CTRP) hit a new 52 week low on Thursday. After Thursday's move, CTRP is now down more than 20% since my previous sell recommendation on April 22.
In early June, CTRP announced a $300 million share buyback program. Clearly, management believes that shares are significantly undervalued. The buyback represents a significant proportion of the shares outstanding as CTRP has a market cap of just $2.3 billion. While there may be a positive impact from the buyback, in my mind, it raises questions about CTRP's business. Given the large travel market in China, it seems as if it would make more sense for CTRP to reinvest the money to grow its business. That being said, a buyback is certainly a better alternative to the company doing nothing with the cash.
CTRP has $777 million in cash or $5.41 per share and no debt. CTRP trades at just under 16 times forward earnings.
As of June 15, when short interest was last reported, short interest in CTRP stood at 10 million shares or 7% of the float. The high short interest is representative of the skepticism over CTRP.
Due to the sharp decline in share price and new share buyback program, my outlook for CTRP has improved slightly from my initial piece. While it may no longer make sense to sell CTRP, I would not be looking to buy the stock either as the buyback raises questions about the company's ability to grow. I would suggest waiting for Q2 earnings and then taking another look at CTRP.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.