What Does Tongcheng Travel Holdings Limited's (HKG:780) Share Price Indicate?

Tongcheng Travel Holdings Limited (HKG:780), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the SEHK over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Tongcheng Travel Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Tongcheng Travel Holdings

What is Tongcheng Travel Holdings worth?

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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Tongcheng Travel Holdings’s ratio of 34.43x is above its peer average of 18.12x, which suggests the stock is trading at a higher price compared to the Hospitality industry. 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?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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? It seems like the market has well and truly priced in 780’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to 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.

So while earnings quality is important, it's equally important to consider the risks facing Tongcheng Travel Holdings at this point in time. In terms of investment risks, we've identified 1 warning sign with Tongcheng Travel Holdings, and understanding it should be part of your investment process.

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.