At HK$15.44, Is Tongcheng Travel Holdings Limited (HKG:780) Worth Looking At Closely?

By
Simply Wall St
Published
January 20, 2022
SEHK:780
Source: Shutterstock

Tongcheng Travel Holdings Limited (HKG:780), might not be a large cap stock, but it saw a decent share price growth in the teens level on the SEHK over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Tongcheng Travel Holdings’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Tongcheng Travel Holdings

Is Tongcheng Travel Holdings still cheap?

Tongcheng Travel Holdings is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 36.08x is currently well-above the industry average of 18.65x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Tongcheng Travel Holdings’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What kind of growth will Tongcheng Travel Holdings generate?

earnings-and-revenue-growth
SEHK:780 Earnings and Revenue Growth January 20th 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to more than double over the next couple of years, the future seems bright for Tongcheng Travel Holdings. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? 780’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe 780 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on 780 for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for 780, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Diving deeper into the forecasts for Tongcheng Travel Holdings mentioned earlier will help you understand how analysts view the stock going forward. Luckily, you can check out what analysts are forecasting by clicking here.

If you are no longer interested in Tongcheng Travel Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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