Poetic Portfolios

Similar to my recent post on Apple (AAPL), I have to wonder if Ctrip (CTRP) is worth selling. The stock hit a new 52-week high yesterday, and appears to be selling at quite a premium. The stock trades at over 62x trailing twelve-month earnings. This looks rich even for a company that continues to grow at over a 25% year-over-year rate.

In their most recent quarter, net revenues grew by 27% on a year-over-year basis. Including the effects of share-based compensation, net earnings were up 23% on a year-over-year basis. In their outlook, Ctrip projects 25% growth for their third quarter. This projection is likely conservative as management tends to deliver higher growth than forecast.

Ctrip trades at a premium because of what it could become. I used to think of Expedia (EXPE) as an example of what Ctrip could be. At times, I think that’s pretty conservative as Ctrip has a much larger market available to them. Expedia has a market cap of just under $7 billion while Ctrip has a market cap of just over $4 billion. I think it’s conceivable that Ctrip will be a larger company than Expedia in five years.

Despite this, Ctrip shares look overvalued. Assuming a 5-year growth rate of 25% and then growth declining to 15% by year 10, Ctrip is worth $66 per share at a 10% discount rate and $55 per share at a 12% discount rate. I will likely look to sell shares of Ctrip if they reach over $60 again. If shares fall to around $40, that would represent a 25% discount to my intrinsic value calculation at a 12% discount rate. That would signal a buy point for me.

Ctrip’s management has been very effective in managing growth, shares are just starting to look a bit expensive.

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This entry was posted on Wednesday, September 30th, 2009 at 10:02 am and is filed under Ctrip. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.