Why Ctrip.com International Ltd. Stock Dropped 14% in August

MarketsMotley Fool

What happened

Shares of China-based travel giant Ctrip (NASDAQ: CTRP) lost 14% last month, according to data provided by S&P Global Market Intelligence.

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The decline still left long-term investors showing solid gains, given that the stock is up over 20% so far in 2017.

So what

Through most of the month, investors bid the stock lower due to fears that the company would post disappointing results for its fiscal second quarter. That didn't happen. Instead, the travel giant announced a 45% sales spike that hit the high end of management's guidance. In addition, it logged sharply improving gross and operating profit margins.

In one of several strategic wins during the quarter, Ctrip achieved deeper market access in China's smaller cities by opening 400 physical locations, with 200 more on the way. "We are pleased with the strong operating and financial results in the second quarter," CEO Jane Jie Sun told investors in a late August press release.

Now what

However, the stock tumbled immediately following the earnings announcement as investors reacted to the company's conservative growth outlook. Ctrip is projecting its revenue expansion pace will come in between 35% and 40% to mark its slowest growth in over two years.

That shift shouldn't worry long-term investors, especially considering that it is occurring in the context of dramatically expanding profitability. Over the next few quarters, Ctrip is likely to press that growing financial advantage and begin cashing in on its dominant market position by pushing operating margin higher.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Ctrip.com International. The Motley Fool has a disclosure policy.