Hello WSO,
I have recently got an interview for an investment research position at a BB. I made an earlier thread about being lost on a valuation part for a CTRIP stock pitch. I was wondering if you could read what I would say in an interview regarding the valuation section of my stock pick and provide feedback.
Ctrip is currently trading at a P/E ratio of approximately 1063x compared to the industry average at 19. As a result, a P/E metric is not meaningful. This premium was attributed to abnormally high costs in 2016 following the consolidation of statements after it acquired its loss making rival, Qunar. This is also partly the reason for declined EBITDA margins in early 2016.
Because of this I then looked at EV/Sales as a metric to compare. Again CTRIP is trading at a premium based on a comparable company analysis to its peers in the USA. However due to CTRIPs dominant market share in China as well as high revenue growth rate (70-75% in 2016 and so far 40-45% in 2017) and improving operational profitability to margins similar to pre-2015 (2015 there was a huge price war in Chinas online travel industry where CTRIP gained majority market share. I will cover this earlier in the stock pitch) of 20-30% as stated in a Q3 2016 management call I feel this premium is justified.
So although on a comparable valuation level the firm is trading above its peer it is justified by high growth and cost-cutting measures. Of course, earlier I will mention some market/macro trends such as it being a winner take all market etc.
Is this ok to say in an interview or would they not like I am recommending a stock which seems to be overvalued on multiple bases?
Also any other relevant financial information I should know for the company??? E.g. are things like quick ratio etc relevant for a stock pitch?
Thanks.
