An Intrinsic Calculation For Trip.com Group Limited (NASDAQ:TCOM) Suggests It's 39% Undervalued

In This Article:

Key Insights

  • The projected fair value for Trip.com Group is US$100 based on 2 Stage Free Cash Flow to Equity

  • Current share price of US$61.45 suggests Trip.com Group is potentially 39% undervalued

  • Our fair value estimate is 35% higher than Trip.com Group's analyst price target of CN¥74.49

Does the May share price for Trip.com Group Limited (NASDAQ:TCOM) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the forecast future cash flows of the company and discounting them back to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

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Step By Step Through The Calculation

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF (CN¥, Millions)

CN¥16.4b

CN¥19.4b

CN¥23.2b

CN¥24.7b

CN¥26.1b

CN¥27.3b

CN¥28.4b

CN¥29.4b

CN¥30.4b

CN¥31.4b

Growth Rate Estimate Source

Analyst x7

Analyst x7

Analyst x6

Est @ 6.61%

Est @ 5.45%

Est @ 4.64%

Est @ 4.07%

Est @ 3.68%

Est @ 3.40%

Est @ 3.20%

Present Value (CN¥, Millions) Discounted @ 7.7%

CN¥15.2k

CN¥16.8k

CN¥18.5k

CN¥18.3k

CN¥18.0k

CN¥17.4k

CN¥16.8k

CN¥16.2k

CN¥15.6k

CN¥14.9k

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = CN¥168b