Ctrip.com International, Ltd. (NASDAQ:CTRP) and Marriott International, Inc. (NASDAQ:MAR) are the two most active stocks in the Lodging industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CTRP to grow earnings at a 5.71% annual rate over the next 5 years. Comparatively, MAR is expected to grow at a 15.25% annual rate. All else equal, MAR’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Ctrip.com International, Ltd. (CTRP) has an EBITDA margin of 28.77%, compared to an EBITDA margin of 8.98% for Marriott International, Inc. (MAR). This suggests that CTRP underlying business is more profitable. CTRP’s ROI is -1.90% while MAR has a ROI of 7.00%. The interpretation is that MAR’s business generates a higher return on investment than CTRP’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. On a percent-of-sales basis, CTRP’s free cash flow was 0% while MAR converted 3.38% of its revenues into cash flow. This means that, for a given level of sales, MAR is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. CTRP has a current ratio of 1.50 compared to 0.50 for MAR. This means that CTRP can more easily cover its most immediate liabilities over the next twelve months. CTRP’s debt-to-equity ratio is 0.61 versus a D/E of 1.70 for MAR. MAR is therefore the more solvent of the two companies, and has lower financial risk.
CTRP trades at a forward P/E of 27.90, a P/B of 2.45, and a P/S of 8.55, compared to a forward P/E of 21.26, a P/B of 7.77, and a P/S of 1.79 for MAR. CTRP is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. CTRP is currently priced at a -15.99% to its one-year price target of $62.47. Comparatively, MAR is -6.36% relative to its price target of $107.50. This suggests that CTRP is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.80 for CTRP and 2.40 for MAR, which implies that analysts are more bullish on the outlook for MAR.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. CTRP has a beta of 1.70 and MAR’s beta is 1.36. MAR’s shares are therefore the less volatile of the two stocks.
Marriott International, Inc. (NASDAQ:MAR) beats Ctrip.com International, Ltd. (NASDAQ:CTRP) on a total of 7 of the 13 factors compared between the two stocks. MAR is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, MAR is the cheaper of the two stocks on an earnings and sales basis, Finally, LUK has better sentiment signals based on short interest.