This Chinese travel company is attracting peer investment and its shares are gaining momentum.
Tuniu Corp (TOUR)
from Cabot China & Emerging Markets Report
Tuniu Corp (TOUR) operates a one-stop online and mobile platform marketplace for guided tours for Chinese tourists. The company provides consolidated access to over 3,000 travel suppliers around the world, with over 200,000 different tour products in over 70 countries worldwide.
The company owns 16.7% of the Chinese online travel market. That’s fairly small compared to Ctrip.com, which has a whopping 59% share, but it’s about on a par with competitors Qunar (24%) and eLong (17%). Tuniu is the leader in package and group tour sales aimed at leisure travelers. Ctrip.com has invested $15 million in Tuniu; that’s not a huge amount, but it’s a vote of confidence and a likely admission that Tuniu addresses a market that Ctrip doesn’t.
The real appeal of Tuniu for investors is the company’s position at the convergence of two major Chinese trends: the rise of the Chinese middle class and the skyrocketing growth of mobile devices as the primary way for Chinese consumers to access the Internet.
Tuniu isn’t profitable now, and doesn’t expect to turn profitable this year or even in 2015. Revenue growth was 46% in 2012 and 80% in 2013, which is a good trend, and EPS is expected to improve from losses of $1.42 in 2013 and 64 cents in 2014 to just two cents in 2015. The investors who are buying TOUR now aren’t all that concerned. They see Chinese market growth and Tuniu’s attractive business plan (plus the company’s status as a possible takeover target) and are willing to wait.
TOUR came public at 9 on May 9 and never traded below 10. The stock soared to near 20 in late May, and traded in a fairly tight range with support at 16 and resistance at 18 through last week. TOUR broke out on moderately elevated volume and has been surging higher since late July, pushing past its June-July resistance at 20 and heading higher on modestly higher volume.
There’s no specific piece of news to point to as a basis for this move, and the volume doesn’t look like a whale is taking a big bite. We’ll stay on buy, buoyed by our sudden 20% profit, as we wait for the company’s earnings results on Tuesday before the open. As with our other imminent quarterly reports, be moderate in buying just before earnings. We think it makes sense to keep initial investments small, probably one-third to one-half of your usual equal dollar exposure. We will also keep the stock on a fairly tight leash, with a mental stop at 18, which is both its previous resistance and its 25-day moving average. BUY A HALF.
Paul Goodwin, Cabot China & Emerging Markets Report, www.cabot.net, 978-745-5532, July 31, 2014