Should You Buy Ctrip.com International Ltd (ADR) (CTRP) Stock? 3 Pros, 3 Cons

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Chinese travel service provider Ctrip.com International Ltd (ADR) (NASDAQ:CTRP) has made its way nearly 30% higher so far this year as the firm established itself as a leading player in the online travel industry. Although the firm has made several moves toward expanding its business and ensuring its relevance in the future, there are still a lot of reasons to be cautious about CTRP stock.

Should You Buy Ctrip,com International Ltd (ADR) (CTRP) Stock? 3 Pros, 3 Cons

With Ctrip earnings due out on Wednesday, now is a good time to evaluate whether or not the stock would make a meaningful addition to your portfolio.

Strategic Investments by Ctrip.com

Ctrip.com has been working to expand its network with a series of strategic acquisitions that analysts have praised as being necessary investments in the firm’s future. One of Ctrip’s most talked about acquisitions has been that of Skyscanner, a major airline search company.

The Skyscanner purchase was a major stepping stone into air travel for Ctrip, and the firm is hoping to expand the site’s capabilities to allow for direct booking options.

In addition to buying Skyscanner, Ctrip has also picked up a Chinese travel agent that operates in brick-and-mortar stores throughout Western China, as well as two U.S. tour operators that cater mostly to Chinese travelers.

The primary reason that the Ctrip.com acquisitions are seen in a positive light is that they expand CTRP’s network and thus give the firm leverage over the airlines and hotels that it works with. The online travel business is all about size — being the biggest means you can negotiate better deals, offer a wider range of travel and accommodation options, and attract more customers.

Growth Potential

Another reason to consider CTRP stock over some of its U.S. counterparts Expedia Inc (NASDAQ:EXPE) and Priceline Group Inc (NASDAQ:PCLN) is the massive growth opportunity that the Chinese market offers. Not only is the online travel space a relatively new industry in China, but the country’s growing middle class will have the purchasing power to travel more frequently. China’s middle class is seen taking 700 million trips over the next five years, so intermediaries like Ctrip.com will likely see growth in user numbers.

Not only that, but internet usage among the Chinese population is still growing rapidly. Recent data shows that just over half of the nation’s population uses the internet. As more people come online, travel search engines will also increase in popularity.

International Expansion

Another big thing that Ctrip has been working on is expansion outside of China.

At the moment, the firm is focused on markets whose tourists are interested in similar destinations like East Asia — but Ctrip is looking to make its way westward as well. Not only is the firm making acquisitions that put it in touch with Western businesses, but CTRP has been working together with Spanish travel agents and even partnering with PCLN.

Expansion Uncertainties

While Ctrip’s expansion plans are certainly a positive for shareholders, it’s important to note that they are still only plans. There is a lot of uncertainty when it comes to CTRP’s growth, especially outside of Asia. Although the firm has been making what look to be smart acquisitions, we have yet to see whether or not they will produce meaningful returns.

With CTRP stock due to release second-quarter earnings on Wednesday, it’s worthwhile to keep an eye on the firm’s future plans. Ctrip Founder and Chairman Jams Liang confirmed that one of the company’s major initiatives is expanding outside of China during the Q1 earnings call, so an update on progress this quarter may be able to assuage investors’ concerns.

Competition Is Fierce

Another weight on CTRP stock is the fact that the online travel industry is already packed with competition. Not only will Ctrip.com have to compete with startups and online travel agents similar to itself, but the firm will also have to fend off heavy hitters like Alibaba Group Holdings Ltd (NASDAQ:BABA), that are making moves into the online travel space.

US firms like Expedia and Priceline are also working to expand into China, and although PCLN is already an investor in Ctrip, the firm has been clear about its intentions to penetrate the Chinese market.

Online travel agents also have to deal with hotels and airlines themselves, which are building up their own online presence in an effort to cut out the middleman and sell directly to consumers.

CTRP Stock Is in a Fast Changing Industry

The other issue that CTRP stock is facing is the fickle nature of the travel industry. Because the Chinese platform caters mostly to leisure travelers, adverse conditions like a downturn in the economy or a terrorism threat will take a massive toll on Ctrip.com.

This is where Ctrip’s lack of a presence outside China could be a problem — if the Chinese economy hits a rough patch and disposable incomes drop, leisure travel will be one of the first cuts people make.

The Bottom Line

CTRP stock certainly carries some risk, particularly because it operates primarily in China.

However, being a part of the developing online travel industry in China is also a huge growth catalyst that may pay off in a big way in the years to come.

Investors who are willing to ride out economic turbulence may want to consider adding CTRP to their portfolios because the firm appears to be well positioned enough to fend off rising competition and will likely reap the benefits of China’s growing travel market.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/ctrip-com-international-ltd-adr-ctrp-stock-pros-cons/.

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