Headquartered in Shanghai. China, Trip.com Group (TCOM) is a leading global travel services provider that comprises Trip.com, Ctrip, Skyscanner, and Qunar. With $14.81 billion in market cap, TCOM is one of the largest companies in the travel services industry.

The company's shares have declined 30.2% in price over the past year and 18.8% over the past month. Closing yesterday's trading session at $22.88, the stock is currently trading 49.4% below its 52-week high of $45.19, which it hit on March 17, 2021.

As governments worldwide reinforce international travel restrictions, investors fear a slowdown in future bookings and delays in the industry's already sluggish recovery. This, along with TCOM's already poor profitability, might cause the stock to retreat further in the near term.

Here is what could shape TCOM's performance in the near term:

Strategic Collaboration

TCOM and Travel Fiji have signed a three-year strategic Memorandum of Understanding (MOU) to promote outbound tourism to Fiji and expand its exposure to the worldwide Chinese population in key markets. The company's expanded collaboration with Tourism Fiji seeks to promote and boost the recovery of tourism to the location and encourage visitors from around the world to visit once international travel restrictions are eased.

Industry Headwinds

More than 75 countries have confirmed cases of omicron, and 36 U.S. states have detected the variant in the U.S. According to the Centers for Disease Control and Prevention, roughly 73% of COVID-19 cases in the U.S. are omicron. Though the government has assured the nation that the economy will not be shut down in response to the infection surge, increased travel restrictions and other mandates may negatively impact TCOM's financials in the coming months.

Mixed Profitability

TCOM's 78.4% gross profit margin is 118.3% higher than the industry average of 35.9%. Also, its 2.6% trailing-12-months CAPEX/Sales is 3.4% higher than the 2.5% industry average.

However, TCOM's 2.9% trailing-12-months EBITDA margin is 77.6% lower than the 12.8% industry average. Also, its ROA, net income margin, and ROC are negative 0.6%, 6.3%, and 0.27%, respectively. Furthermore, its trailing-12-months cash from operations stood at a negative $585.65 million, versus the $186.94 million industry average.

Consensus Rating and Price Target Indicate Potential Upside

Each of the eight Wall Street analysts that rated TCOM have rated it Buy. The 12-month median price target of $36.50 indicates a 59.5% potential upside. The price targets range from a low of $29.00 to a high of $44.00.

Premium Valuations

In terms of forward non-GAAP P/E, the stock is currently trading at 130.82x, 810.1% higher than the industry average of 14.37x. Also, its forward EV/Sales multiple of 4.53x is 229.5% higher than the industry average of 1.37x. Moreover, TCOM's 4.83x forward Price/Sales is 315.8% higher than the 1.16x industry average.

POWR Ratings Reflect Uncertainty

TCOM has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TCOM has a C grade for Value and Quality. The company's higher-than-industry valuation is in sync with the Value grade. In addition, TCOM's mixed profitability is consistent with the Quality grade.

Of the 53 stocks in the F-rated China group, TCOM is ranked #20.

Beyond what I have stated above, one can view TCOM ratings for Growth, Stability, Momentum, and Sentiment here.

Bottom Line

Though TCOM has made significant progress through its collaborative efforts with various organizations, its mixed profitability and lofty valuations threaten its future performance. In addition, as the fears related to the omicron variant take center stage, TCOM's near-term prospects look uncertain. So, we believe investors should wait for its prospects to stabilize before investing in the stock.

How Does Trip.com Group Limited (TCOM) Stack Up Against its Peers?

While TCOM has an overall C rating, one might want to consider its industry peers Fuwei Films (Holdings) Co. Ltd. (FFHL) and NetEase Inc. ADR (NTES), which have an overall A (Strong Buy) rating.

TCOM shares were trading at $23.10 per share on Thursday morning, up $0.22 (+0.96%). Year-to-date, TCOM has declined -31.51%, versus a 27.39% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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