Does the January share price for Ctrip.com International, Ltd. (NASDAQ:CTRP) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value by taking the expected future cash flows and discounting them to their present value. I will be using the discounted cash flows (DCF) model. It may sound complicated, but actually it is quite simple! Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this and its not January 2019 then I highly recommend you check out the latest calculation for Ctrip.com International by following the link below.
View our latest analysis for Ctrip.com International
What’s the value?
I use what is known as a 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a more stable growth phase. To start off with we need to estimate the next five years of cash flows. For this I used the consensus of the analysts covering the stock, as you can see below. The sum of these cash flows is then discounted to today’s value.
5-year cash flow forecast
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Levered FCF (CN¥, Millions) | CN¥6.40k | CN¥6.86k | CN¥12.47k | CN¥17.92k | CN¥20.79k |
| Source | Analyst x6 | Analyst x7 | Analyst x2 | Analyst x1 | Est @ 16%, capped from 36.16% |
| Present Value Discounted @ 17.05% | CN¥5.46k | CN¥5.01k | CN¥7.77k | CN¥9.55k | CN¥9.46k |
Present Value of 5-year Cash Flow (PVCF)= CN¥37b
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 the GDP. In this case I have used the 10-year government bond rate (2.9%). In the same way as with the 5-year ‘growth’ period, we discount this to today’s value at a cost of equity of 17.1%.
Terminal Value (TV) = FCF2023 × (1 + g) ÷ (r – g) = CN¥21b × (1 + 2.9%) ÷ (17.1% – 2.9%) = CN¥152b
Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = CN¥152b ÷ ( 1 + 17.1%)5 = CN¥69b
The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is CN¥106b. To get the intrinsic value per share, we divide this by the total number of shares outstanding, or the equivalent number if this is a depositary receipt or ADR. This results in an intrinsic value of $28.36. Compared to the current share price of $27.75, the stock is about right, perhaps slightly undervalued at a 2.2% discount to what it is available for right now.