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EScroogeJr (< 20)

ctrp overvalued

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January 03, 2007 – Comments (0)

Very far away, somewhere in Eastasia, there is a country with an infinite number of people. In that country, there is a company with infinite growth rate that stands to earn an infinite amount of money. So the story goes.

Apparently, many adult Americans still believe fairy tales. Otherwise, I don't know how to explain today's trading when supposedly rational, grown-up people payed 52 times forward earnings for CTRP. Yes, that's right: 52 times forward earnigns, 15 times forward sales. And that assuming that analysts' ambitions 50% growth expectations for 2007 come true.

For the next 5 years, analysts expect "only" 35% annual growth, making the PEG equal 1.9. If these extrapolations are correct, rational projections show that investors can hope to make something like 15% a year from now to 2012. That is, if by that time China is still around, growing it economy at the current brisk rate and respecting the rights of American investors. Of course, rationality is not a factor in investors' calculations. Judging from today's performance, they seem to expect CTRP to keep growing 50% a year essentially forever.

OK, let's build a short position in CTRP and watch it fall from a great height.

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