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Ctrip Running on Schedule
07/22/2009 10:37 am EST
China's online travel booker combines strong fundamentals with a promising chart, writes Timothy Lutts of Cabot Wealth Advisory.
One of my favorite Chinese stocks in recent years has been Ctrip.com (Nasdaq: CTRP), which you might call the Chinese equivalent of Expedia, the online travel service.
Increasing numbers of Chinese can now afford to travel throughout their own country, for both business and pleasure. And increasing numbers of them are logging on to Ctrip to book their plane flights, reserve their hotels rooms, and rent their cars... or simply to sign up for package tours.
It's not rocket science; in fact, Ctrip just has to watch what Expedia and the other leaders in the industry are doing, and do the same on their own Web site.
The result has been a perfect record of revenue growth over the past decade, and a perfect record of earnings growth since the company turned profitable in 2003. In the most recent quarter, revenues grew 21% to $58.6 million, while earnings grew 19% to $0.32 per share.
Paul Goodwin, editor of Cabot China & Emerging Markets Report, recommended the stock to his readers back on May 14, when it was trading at 37, writing:
"It used to be that when Chinese families traveled, especially for Chinese New Year and other holidays that required long journeys, they would just get off the train in their destination city and then start looking for a place to stay.
"There's probably a lot of that kind of non-planning still going on, but the Internet and Ctrip.com have changed things a lot.
"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."
But the fundamentals are only part of the picture; all Cabot growth stocks need to possess promising charts, as well, indicating strong sponsorship by institutional investors. Paul wrote:
"All in all, this looks like a good setup for a vigorous company with an enormous potential market and a reasonable P/E ratio of 30x. There may be some overhead from last year's owners who still hold the stock between $40 and $50, but with a good earnings report and a couple of analysts' upgrades under its belt, CTRP's prospects are excellent."
Since then, the stock has climbed to resistance at $48 again, and pulled back (in market weakness) to its 50-day moving average at $40. I think it's a high-potential set-up, but if it goes wrong, stops under $39 should keep losses small. (CTRP shares closed at $47.96 on the Nasdaq Tuesday—Editor.)
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