On Friday, Bernstein SocGen Group maintained a positive stance on Trip.com Group Limited (NASDAQ: TCOM), reiterating an Outperform rating and a price target of $85.00. The firm's analysis follows a series of over 50 investor meetings, which highlighted key topics and concerns regarding the online travel agency's future.
Investors are currently divided on the trajectory of travel demand growth. While domestic travel in China has exceeded 2019 levels, there are questions about whether this growth will continue at a linear rate. Additionally, there are perceived structural challenges to outbound travel growth. Despite these uncertainties, Bernstein suggests that the market may be underestimating the potential for Trip.com to gain market share in the online travel agency (OTA) sector.
Current valuations hinge on Trip.com achieving long-term earnings per share in the high teens, sharpening investor focus on risks such as competitive pressures, potential overspending on international expansion, and persistent governance concerns. High stock-based compensation (SBC) is frequently mentioned in discussions about the company's governance.
Bernstein remains optimistic about Trip.com's prospects, citing the travel sector's potential to be among the first to benefit from an uptick in consumer spending. While the market's positioning in Trip.com is considered crowded, it is not seen as excessive. Hedge funds appear to have been trading the stock actively, while long-term investors are deliberating their strategies.
With regards to the near term, Bernstein is keeping a close watch on outbound travel, which is still viewed as having growth potential. The firm concludes that Trip.com's valuation at 18 times forward earnings does not appear excessive.
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