This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Beware analysts bearing short-term forecasts
Ctrip.com (Nasdaq: CTRP) "is one of the top gainers on the Nasdaq [Monday]. The Chinese online travel site ... is one of the best-performing China plays. ... In addition to positive news about the yuan, [Piper Jaffray] has added fuel to the rally by reiterating its Overweight rating ... The combination has sparked a high-volume breakout that will likely carry Ctrip much higher in the near term."

So opined TheStreet.com on Monday. And kudos to it … for reminding us of the perils of momentum trading and short-term forecasts, because instead of heading "much higher," Ctrip has in fact declined more than 5%. This despite what can only be described as a fervently "me-too" endorsement yesterday, from none other than ace China investor Brean Murray.

Echoing the bullish sentiments of Piper and TheStreet.com, Brean yesterday initiated coverage of Ctrip for the first time, calling the stock: "a core holding in the China consumer space. As an undisputed market leader in the China online travel sector (56% market share), we view Ctrip as a golden ticket for investors who want to ride on the rising wave of the sector." (Get it? "Ticket?" "Ride" the wave? Ctrip is an Internet travel reservations site.)

Let's go to the tape
Brave words, but I have to admit, Brean has the reputation to back them up. There are not a lot of investors who can boast a record equaling Brean's success in the Chinese Internet sphere:

And yet, Brean's reputation and praise notwithstanding, Ctrip stock dropped another 3% in yesterday's trading. Why?

After all, Brean's right about the quality of the company. We recognized this ourselves when recommending Ctrip to members of Motley Fool Hidden Gems way back in December 2005, and on two occasions since. My Foolish colleague Rick Munarriz chimed in with a report on the company earlier this month, highlighting Ctrip's 57% increase in earnings in the most recent reported quarter. Going forward, analysts expect to see this pace moderate somewhat, but still predict Ctrip will post growth in the upper-20s for the better part of a half-decade. Superb.

Price is an object
That said -- and I cannot speak for all the investors who sold Ctrip shares yesterday -- I will go so far as to posit one possible reason for the selling: the price.

Ctrip sells for more than 58 times reported earnings, you see, and guesstimating from its most recent cash flow report (Ctrip's not terribly diligent about keeping us up to date on its cash generation), perhaps 48 times trailing free cash flow. Upper-20s growth is fast enough to justify a very high valuation on Ctrip, but not this high. My guess: Investors are finally starting to realize this. But if you're not going to own Ctrip because it's too expensive, what should you buy instead?

A modest, Foolish suggestion
Rick addressed just this dilemma in his column earlier this month. Proffered he: "Investors turned off by [Ctrip's] valuation ... can find solace in smaller players Universal Travel Group (NYSE: UTA) and eLong (Nasdaq: LONG)," citing the former's gangbusters growth rate and the latter's hefty cash hoard. As for me, while I've got nothing against either company, I really think the best idea of all is to leave China entirely, and come on home to priceline.com (Nasdaq: PCLN).

Consider: With a price-to-earnings ratio of only 18, and a price-to-free cash flow ratio that's even cheaper, priceline's, er, price has a whole lot less speculation baked into it. Sure, it's not growing quite as fast as Ctrip, but with analysts projecting a 19%-plus long-term growth rate, priceline's no slacker. Last but not least, while Ctrip has the endorsement of Motley Fool Hidden Gems, priceline.com is a fool fave as well, bearing the imprimatur of our Motley Fool Stock Advisor service.

If you're looking for a play on global travel growth, if you want to pay no more than a fair price, and maybe even snag a bit of a bargain, priceline's your best bet.