Are Trip.com Group Limited (NASDAQ:TCOM) Investors Paying Above The Intrinsic Value?

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Are Trip.com Group Limited (NASDAQ:TCOM) Investors Paying Above The Intrinsic Value?

Simply Wall St.10-27

Key Insights Trip.com Group's estimated fair value is US$50.76 based on 2 Stage Free Cash Flow to Equity Trip.com Group is estimated to be 22% overvalued based on current share price of US$61.85 ...

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Trip.com Group is estimated to be 22% overvalued based on current share price of US$61.85. The CN65.69 analyst price target for TCOM is 29% more than our estimate of fair value. How far off is Trip.com Group Limited  from its intrinsic value?Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the forecast future cash flows of the company and discounting them back to today's value. The Discounted Cash Flow  model is the tool we will apply to do this. Before you think you won't be able to understand it, just read on!Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU1868838027.USD":"CT (LUX) I GLOBAL EMERGING MARKET EQUITIES \"8\" (USD) ACC","SQQQ":"纳指三倍做空ETF","LU0561508036.HKD":"ALLIANZ CHINA EQUITY \"A\" (HKD) INC","LU2095319765.USD":"Natixis Thematics Subscription Economy R/A USD","BK4531":"中概回港概念","LU1720050803.USD":"安联全方位中国股票基金","LU0572944931.SGD":"Janus Henderson Horizon China Opportunities A2 SGD","BK4534":"瑞士信贷持仓","BK4585":"ETF&股票定投概念","LU2210149790.SGD":"Natixis Thematics Subscription Economy R/A SGD-H","LU1868837565.USD":"CT (LUX) I GLOBAL EMERGING MARKET EQUITIES \"1\" (USD) ACC","QLD":"纳指两倍做多ETF","IE00BKPKM429.USD":"NEUBERGER BERMAN GLOBAL SUSTAINABLE EQUITY \"A\" (USD) ACC","LU0348825331.USD":"ALLIANZ CHINA EQUITY \"A\" (USD) INC","TQQQ":"纳指三倍做多ETF","LU0828237510.HKD":"SCHRODER ISF BIC (BRAZ IN CH)\"A\" (HKD) ACC","FCF":"第一联邦金融","TV":"墨西哥电视","LU0143863198.USD":"CT (LUX) I GLOBAL EMERGING MARKET EQUITIES\"AU\" (USD) ACC","IE00B64PRP62.GBP":"GUINNESS GLOBAL MONEY MANAGERS \"C\" (GBP) ACC","IE00B5MMRT66.SGD":"NEUBERGER BERMAN CHINA EQUITY \"A\" (SGDHDG) ACC","PSQ":"纳指反向ETF","LU0594300419.USD":"富达中国消费基金A","IE00B3QW5Z07.USD":"GUINNESS GLOBAL MONEY MANAGERS \"C\" (USD) ACC","LU0370786039.SGD":"Fidelity Greater China A-SGD","ISBC":"投资者银行","BK4526":"热门中概股","BK4588":"碎股","IE00B543WZ88.USD":"NEUBERGER BERMAN CHINA EQUITY \"A\" (USD) ACC","LU1868837722.USD":"CT (LUX) I GLOBAL EMERGING MARKET EQUITIES \"2\" (USD) ACC","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","LU1961090484.USD":"ALLIANZ ALL CHINA EQUITY \"A\" (USD) INC",".IXIC":"NASDAQ Composite","LU0417516902.SGD":"Allianz China Equity Cl AT Acc SGD","LU0593848301.USD":"未来资产亚洲卓越消费股票基金A","IE00BPRC5H50.USD":"NEUBERGER BERMAN CHINA EQUITY \"A\" (USD) INC","LU0348827113.USD":"ALLIANZ RCM CHINA \"AT\" ACC","TCOM":"携程网","K3RD.SI":"TRIP ADR US$+","LU2152927971.USD":"NORDEA 1 ASIAN STARS EQUITY \"BP\" (USD) ACC","LU0359202008.SGD":"Blackrock China Fund A2 SGD-H","LU0650527681.SGD":"Fidelity China Consumer A-SGD","LU0359201885.HKD":"BGF CHINA \"A2\" (HKD) ACC","QID":"纳指两倍做空ETF","BK4112":"金融交易所和数据","LU2399975544.HKD":"ALLIANZ ALL CHINA EQUITY \"AT\" (HKD) ACC","NDAQ":"纳斯达克OMX交易所"},"translate_title":"携程集团有限公司（纳斯达克股票代码：TCOM）投资者支付的费用是否高于内在价值？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TV":1,"TCOM":1,".IXIC":1,"DCF":1,"FCF":1,"NDAQ":1,"ISBC":1,"K3RD.SI":0.9,"PSQ":0.6,"QID":0.6,"QLD":0.6,"SQQQ":0.6,"TQQQ":0.6,"MNQmain":0.6,"NQmain":0.6},"content_text":"Key Insights\n\n Trip.com Group's estimated fair value is US$50.76 based on 2 Stage Free Cash Flow to Equity \n Trip.com Group is estimated to be 22% overvalued based on current share price of US$61.85 \n  The CN¥65.69 analyst price target for TCOM is 29% more than our estimate of fair value \n\n How far off is Trip.com Group Limited (NASDAQ:TCOM) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the forecast future cash flows of the company and discounting them back to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. \n Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. \n Check out our latest analysis for Trip.com Group \n The Method \n We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value: \n 10-year free cash flow (FCF) forecast \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF (CN¥, Millions) \nCN¥15.6b\nCN¥18.1b\nCN¥19.0b\nCN¥16.3b\nCN¥14.8b\nCN¥14.0b\nCN¥13.6b\nCN¥13.4b\nCN¥13.3b\nCN¥13.4b\n\n\nGrowth Rate Estimate Source\nAnalyst x6\nAnalyst x5\nAnalyst x2\nAnalyst x1\nEst @ -9.04%\nEst @ -5.58%\nEst @ -3.15%\nEst @ -1.46%\nEst @ -0.27%\nEst @ 0.56%\n\n\n Present Value (CN¥, Millions) Discounted @ 7.6% \nCN¥14.5k\nCN¥15.6k\nCN¥15.2k\nCN¥12.2k\nCN¥10.3k\nCN¥9.0k\nCN¥8.1k\nCN¥7.4k\nCN¥6.9k\nCN¥6.4k\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CN¥106b\n The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.5%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.6%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = CN¥13b× (1 + 2.5%) ÷ (7.6%– 2.5%) = CN¥269b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥269b÷ ( 1 + 7.6%)10= CN¥130b\n The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is CN¥235b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$61.9, the company appears slightly overvalued at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. \n\n\n\n  NasdaqGS:TCOM Discounted Cash Flow October 27th 2024\n \n\n Important Assumptions \n The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Trip.com Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.6%, which is based on a levered beta of 1.237. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. \nSWOT Analysis for Trip.com Group\n\n\nStrength\n\nEarnings growth over the past year exceeded the industry.\n\n\nDebt is not viewed as a risk.\n\n\nBalance sheet summary for TCOM.\n\n\n\nWeakness\n\n No major weaknesses identified for TCOM.\n\n\n\nOpportunity\n\nAnnual revenue is forecast to grow faster than the American market.\n\n\nGood value based on P/E ratio compared to estimated Fair P/E ratio.\n\n\n\nThreat\n\n Annual earnings are forecast to grow slower than the American market.\n\n\nWhat else are analysts forecasting for TCOM?\n\n\n\n Moving On: \n Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. What is the reason for the share price exceeding the intrinsic value? For Trip.com Group, there are three essential items you should further research: \n\nFinancial Health: Does TCOM have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.\nFuture Earnings: How does TCOM's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.\n Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! \n\n PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.\nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"hasMoreComments":false,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}