It hasn't been a great evening session for Trip.com investors, who have watched their shares sink by -3.0% to a price of $45.9. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
The Market May Be Undervaluing Trip.com's Assets and Equity:
Trip.com Group Limited operates as a travel service provider for accommodation reservation, transportation ticketing, packaged tours and in-destination, corporate travel management, and other travel-related services in China and internationally. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.96 and an average price to book (P/B) ratio of 4.24. In contrast, Trip.com has a trailing 12 month P/E ratio of 22.4 and a P/B ratio of 0.24.
Trip.com's PEG ratio is 7.7, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Company's Revenues Are Declining:
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $4,146 | $4,524 | $5,122 | $2,807 | $3,142 | $2,907 |
| Gross Margins | 82% | 79% | 79% | 78% | 77% | 78% |
| Net Margins | 8% | 4% | 20% | -18% | -3% | 7% |
| Net Income (M) | $329 | $162 | $1,006 | -$497 | -$86 | $206 |
| Net Interest Expense (M) | $198 | $219 | $241 | $263 | $246 | $219 |
| Depreciation & Amort. (M) | $75 | $79 | $94 | $121 | $113 | $92 |
| Diluted Shares (M) | 574 | 567 | 642 | 601 | 634 | 657 |
| Earnings Per Share | $0.57 | $0.29 | $1.57 | -$0.83 | -$0.14 | $0.31 |
| EPS Growth | n/a | -49.12% | 441.38% | -152.87% | 83.13% | 321.43% |
| CAPEX (M) | $72 | $98 | $118 | $81 | $89 | $72 |
| Total Debt (M) | $6,999 | $8,750 | $7,189 | $8,641 | $6,263 | $17,837 |
| Net Debt / EBITDA | 7.99 | 12.27 | 5.3 | -60.49 | -29.19 | 143.66 |
| Current Ratio | 1.4 | 1.15 | 0.98 | 0.99 | 1.0 | 1.0 |
Trip.com's financial statements include several red flags such as declining revenues and decreasing reinvestment in the business, declining EPS growth, and not enough current assets to cover current liabilities because its current ratio is 1.0. Additionally, the firm has a highly leveraged balance sheet. On the other hand, the company has wider gross margins than its peer group working in its favor.
