China Internet stocks were among the most popular choices for investors in the past few years due to the unprecedented boom in China of consumerism, the creation of several major growth opportunities. But mostly unknown names in China’s Internet group is a digital travel site Ctrip.Com international Ltd (ADR) (Nasdaq:CTRP).
CTRP is, in fact, in China go-to online travel website, and is often referred to as “Expedia” Group Inc (indexP) from China. The aforementioned boom in China covers the boom of consumerism in China by air. Indeed, China air travel is one of the biggest drivers of China’s consumerism narrative. As consumers, improvement and earn more, they naturally want to travel more and to spend those dollars a new look at the world.
As a result, reliable, rising stock chelpipe became the winner in the last five years. On this segment with ctrip shares significantly increased four times from $10 above $40.
But most of the profit was a few years ago. Shares of CTRP broke 40 $for the first time in mid-2015. Thus, over the past three years, CHTPZ shares basically traded sideways.
Why sideways despite the strong numbers and huge growth prospects? Growth is slowing, and evaluation on ctrip stock need time to adjust to this era of slowing growth.
The stock has fully adjusted? I think so. At current levels, rip the stock seems to be not only adjusted for slower growth, but actually understated relative to the real growth prospects of the company in China’s booming air transport market.
Here’s a deeper look:
A reliable narrative of growth gives CHTPZ solid Foundation
There is no hiding the fact that CTRP is the slowing down of the narrative of growth. Revenue growth was 76% two years. He fell to 39% last year and is expected to only 20% this year.
Some of this slowdown is due to short-term weakness. Namely, the company is facing a backlash because of the scandal of ill-treatment of children in a Shanghai kindergarten to the end of 2017. What muddied the image of the company, and no doubt had a negative impact on Ctrip.com the visitor traffic.
But this short-term noise associated with bad PR incident will take place. China is still thriving. Chinese consumers are estimated to occupy almost 70% more trips abroad in 2020 than they did in 2015, and CTRP is the absolute market leader in China with a share of over 50%. Of course, the CTRP will shake off short-term bad PR noise and grow healthy together with growing Chinese demand for travel.
Furthermore, CTRP is more than just a China growth travel play. The company a thriving international operations, too.
CHTPZ runs the website Skyscanner, one of the most successful metapoiskovaya sites flight in the world. On the website Skyscanner has 17 million active users and found particular success in Europe.
In the last quarter, CTRP has launched Trip.com the Asia-Pacific region-oriented, one-stop international travel Platform. Although it’s still early, the rise from Trip.com it was very strong.
Overall, then, CHTPZ, mostly pure-play on China’s growth, but the company also has a tangential drivers of growth through internationally focused platforms such as Skyscanner and Trip.com. All together, this gives CHTPZ reliable and fairly wide moat growth story for the next few years.
CTRP stock looks quite Undervalued
Due to the aforementioned reliable narrative of growth, CTRP should be able to create large numbers of revenue growth over the next five years. The whole China’s tourism industry is expected to grow by 8% per year pace over the next 10 years. Thus, assuming that a large part of this growth is front-loaded in the first five years the rate of growth over the next five years in the entire China travel industry should look something like 10-15%.
CTRP should be able to outpace that growth rate of 10-15% because of the leading position in the market. Thus, the rate of 20% growth in revenue over the next five years seems very reasonable.
Margin scaling is higher mainly due to increased automation, providing a good rise in gross profit. This trend should continue, and management believes that Operating margin can get up to 20% to 30% in one to two years, in the last year to 18%.
Thus, in the five-year window, it is reasonable to assume that the Operating margin reaches 35%. Historically, net profit amounted to about 3 percentage points lower than the level of profitability after non-operating income and taxes thrown in the mix. In five years with 35% of the field-flux by 32% net profit.
In General, CHTPZ should be able to grow revenues about 20% per year over the next five years, approximately 10.3 billion dollars. Net profit is expected to increase to 32%, implying that in five years a net profit of $ 3.3 billion. Assuming that the number is growing by about 650 million, which is about the profit on advertising in five years 5.10$.
Market-average growth of shares is a multiple of 19-times forward earnings on these revenues 5.10 $implies four-year forward target price around 97$. Discounting that by 10% a year, you will arrive in a gift worth more than 65$.
Bottom line CHTPZ in a warehouse
Stocks recently passed through difficult times. But the fact that this stock has not made any progress in the last three years, in fact, a possibility.
CTRP shares look significantly undervalued at current levels, given its huge impact on the growing China market. As such, here customers must be rewarded in the long run.
At the time of this writing, Luke Lango was long and CTRP.