In the China-U.S. Trade War, CTRP Stock Is Collateral Damage

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CTRP stock - In the China-U.S. Trade War, CTRP Stock Is Collateral Damage

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The third quarter earnings report and corresponding press release from China’s online travel agent Ctrip.Com International (NASDAQ:CTRP) certainly said all the right things in all the right ways. The 22% tumble CTRP stock has taken since posting its Q3 numbers on Wednesday, however, says investors just aren’t buying it.

They’ve got good reasons for their doubts too. No serious current and prospective owners of CTRP stock really thought the organization would be able to drive sales growth in excess of 40% indefinitely.

The headwind has become stiffer sooner than expected, and Ctrip hasn’t backed off on spending as much as expected. The growth outlook for the quarter currently underway was also less than thrilling.

More than that though, the underlying reason for the disappointing results and guidance (a reason few people want to talk about) doesn’t appear to be going away anytime soon. That is, President Trump’s tariffs are taking a toll not just on the country’s international trade, but within China’s internal economy as well.

A Slow Burn

It was supposed to be Alibaba Group Holding (NYSE:BABA), first and foremost, and then companies like Caterpillar (NYSE:CAT) that would fall victim to the ever-escalating trade war.

Alibaba sells goods made all over the world to customers all over the world, while Caterpillar and many of its U.S. industrial peers needs steel from China that suddenly got more expensive earlier this year.

Travel-booking middlemen like Ctrip weren’t exactly expected to be caught in the crossfire.

That’s largely where Ctrip finds itself now, however. It’s not a direct victim of the trade war per se, but it is collateral damage. China’s already-slowing economy before the tariff battle began has further slowed since a slew of tariffs were put in place. End result? Workers/consumers aren’t collectively as empowered as they were just a few weeks ago.

There’s ample, fresh evidence of the idea. Case in point: During China’s recently-ended biggest holiday week of the year, called Golden Week, consumer spending grew at its slowest pace since the event began back in 2000. And, the country’s Q3 GDP growth rate of 6.5% not only fell short of the expected 6.6%, it was down from Q2’s 6.7% pace.

The tourism industry hasn’t been immune. China’s Tourism Academy reported that the number of domestic travelers during Golden Week grew at its slowest pace since 2007.

Tourism and business travel from China to the United States is down nearly 17% year-to-date. While those flight bookings may or may not have ordinarily involved Ctrip, directly or otherwise, the data does point to a decreasing interest in travel, and a decreasing need for travel arrangements.

It’s obviously all relative, to be clear. China is still making forward progress. So is Ctrip. Consumerism and travel continues to grow there, even if at a slowing pace.

Proof in the Numbers

The CTRP stock price has been more rooted in the speed of the company’s growth and less on the quality or sustainability of its earnings. Last quarter’s 15% year-over-year growth in sales was markedly lower than growth achieved in its recent past.

Just as alarming is that despite last quarter’s slowing sales growth, Ctrip was either unable or unwilling to put the brakes on spending. Product development expenses were up 15%, while sales and marketing expenses grew 14% year-over-year.

In the defensive mode and mood investors of Chinese stocks are in, that kind of aggressiveness is a liability.

Things aren’t likely to fare any better anytime soon either. Ctrip announced it was calling for revenue growth of between 15% and 20% for the fourth quarter now underway.

That’s more or less in line with the 17.3% analysts were collectively calling for, who see the company’s top line growing from Q4-2017’s $919.2 million to $1.08 billion. Ctrip’s shareholder base, however, is one that’s been tacitly trained to expect guidance that’s a little better than the numbers analysts have historically modeled.

Looking Ahead for CTRP Stock

It wasn’t a disastrous quarter, and Ctrip’s challenges aren’t insurmountable. But, as long as China’s economy is slowing, the per-share results CTRP stock yields could seem relatively disappointing, one of the tricky nuances of trading story stocks.

And yes, though the causes and effects of a tariff war can only loosely be assumed to be trouble for Ctrip, should China and the U.S. come to more amiable trade terms, Ctrip could just as easily shift back to a higher growth gear.

Even then though, in much the same way Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) became a headache for travel agents like Expedia Group (NASDAQ:EXPE), Ctrip is only one new entrant away from being forced to go on the defensive.

As of this writing, James Brumley held a long position in Alphabet. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/11/china-u-s-trade-war-ctrip-stock/.

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