It was recently announced that Priceline.com (PCLN) would take a stake in Ctrip.com (CTRP) (found here). However, we believe that PCLN is vastly overpaying for Ctrip.com as we recommended consideration of CTRP when the stock was trading at $23.10. At the time, we suggested that Ctrip.com would decline to $14.16 level in our December 16, 2011 Nasdaq 100 Watch List with the following commentary (found here):
“Ctrip.com International (CTRP) is on a pace to replicate the performance from the high in April 2008 to the low of January 2009 which equaled a loss of 72%. A similar decline in CTRP from the high of $50.57 would bring the price down to $14.16.Suffice to say, the stock “only” needs to decline another $8.94 or 38% from the current price of 23.10.This seems very easy considering the high volatility of Chinese stocks.We believe that unless CTRP is summarily dismissed from the Nasdaq 100 index, there may yet be life in this company.”
Ctrip.com achieved our downside target and is now trading nearly 3x the 14.16 level. True to form, a company has stepped up to nibble at Ctrip.com just when, in our opinion, the stock is overpriced. Obviously this is a boon for investors of Ctrip, however, this isn’t such a good deal for Priceline.com investors. As can be seen in the chart below, Priceline has had ample opportunities in July 2013 and January-February 2014 to acquire two and three times the current amount (based on the relative price change of Priceline and Ctrip).
Dow’s Theory on when to consider a stock would have done Priceline.com shareholders a lot of good. Now the shareholders of PCLN can only be expected to continue to pay up.
