As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that’s been the case for longer term Ctrip.com International, Ltd. (NASDAQ:CTRP) shareholders, since the share price is down 32% in the last three years, falling well short of the market return of around 39%. And the ride hasn’t got any smoother in recent times over the last year, with the price 21% lower in that time. Even worse, it’s down 19% in about a month, which isn’t fun at all.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During the unfortunate three years of share price decline, Ctrip.com International actually saw its earnings per share (EPS) improve by 41% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed. It’s worth taking a look at other metrics, because the EPS growth doesn’t seem to match with the falling share price.
We note that, in three years, revenue has actually grown at a 27% annual rate, so that doesn’t seem to be a reason to sell shares. It’s probably worth investigating Ctrip.com International further; while we may be missing something on this analysis, there might also be an opportunity.
Ctrip.com International is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Ctrip.com International will earn in the future (free analyst consensus estimates)
A Different Perspective
While the broader market lost about 0.5% in the twelve months, Ctrip.com International shareholders did even worse, losing 21%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 0.1% per year over five years. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. Before forming an opinion on Ctrip.com International you might want to consider these 3 valuation metrics.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.