Trip.com Group Limited (TCOM): One of Ray Dalio’s Growth Stock Picks with Over 30% Revenue Growth?

We recently compiled a list of Ray Dalio’s Top 10 Growth Stock Picks with 30+% Revenue Growth. In this article, we are going to take a look at where Trip.com Group Limited (NASDAQ:TCOM) stands against the other stocks with 30+% revenue growth.

Valuing a stock comes in several shapes and flavors. The most common of these is the price to earnings ratio. Not only is this ratio used to evaluate the premium that investors are paying for a firm right now, but it is also used in tandem with forecast earnings to wager a guess at the future share price. This allows investors to position their portfolio with respect to the market and invest in those stocks that they believe can rise in the future.

However, a stock's earnings aren't the only income statement item used in stock valuation. Two other popular approaches are the price to sales or P/S ratio and its peer Enterprise Value to Revenue or EV/Revenue ratio. Both of these look at a firm's top line performance, and the latter is typically used to value those firms that are in high growth sectors that are ripe for acquisitions.

Among these two ratios, the P/S ratio was popularized by the billionaire Ken Fisher. One of the richest people in the world, Fisher has a net worth of $11.2 billion. He shared his approach to using revenue growth in an article for the American Association of Individual Investors (AAII) in 1984. Fisher shared that the P/S ratio could help investors "ratios measure the popularity of the stock." This, according to him, was key since it enabled them to sift out those stocks with low P/S ratios as these carried the highest chances of gaining value in the future in case of positive developments. Fisher added that while the P/E ratio was also a measure of popularity, it was too "elastic" and dependent on the various accounting assumptions used to arrive at net income.

A P/S ratio, on the other hand, removed the effects of these "accounting assumptions," shared Fisher. To back his claims, he outlined that the stocks in the lower quartile (25%) of P/S ratios delivered 64.57% and 56.11% in returns for the bottom seven and nine stocks, respectively which far outstripped the 28.67% in returns of the nine lowest P/E stocks.

However, this piece is about Ray Dalio and not Ken Fisher. Like Fisher, Dalio is also one of the richest people in the world. As of July 2024, Forbes Magazine estimates his net worth to sit at $15.4 billion. Dalio's hedge fund Bridgewater Associates' had listed $19.7 billion worth of investment positions through its SEC filings for 2024's first quarter. These investments follow his approach of taking a broader look at the global economy and geopolitical environment and seeing which stocks can benefit.

Talking about returns, the past couple of years have been tough for Dalio's firm. While he is neither Bridgewater's CEO nor CIO right now, his philosophy is responsible for having set up most of Bridgewater's most well known products like its Pure Alpha fund. Bridgewater's Pure Alpha has struggled over the past four years. It has lost 4% during this time period, in an environment where global bonds and the economy have struggled due to high inflation and interest rates.

At the same time, even though Bridgewater has struggled during recent economic crises, it has managed to hold its ground during several crises of the past. For instance, in 2008, the firm delivered 8.7% in gains at a time when the S&P 500 tumbled by 38.5%. It's times like these that show the true mettle of a hedge fund boss, and during 2018, Bridgewater delivered 14.6% in returns which were in sharp contrast to the hedge fund industry's average 6.7% in losses. As for the Pure Alpha 11 fund, it has delivered 11.4% in returns between 1991 and 2022. Finally, 2024 seems to be a breath of fresh air for Dalio's firm too since during Q1 it posted a strong 16% in returns which were 11 percentage points higher than the hedge fund industry's average 4.59% in returns.

Coming back to revenue growth, while Fisher's central point when favoring P/S over P/E is the undue effect of accounting on earnings and by extension on the share price, is it possible that revenue surprises also drive stock prices? If they do, then the merit of using P/S, and particularly lower P/S stocks as an investment, increases and becomes more important. On this front, research from Emory University and the Stern Business School analyzed income statements, balance sheets, and returns data between 1987 and 2003, to check if there's any relation between revenue surprises and stock returns around earnings announcements.

It revealed that "earnings surprises that are accompanied by revenue surprises signal more persistent earnings growth than similar levels of earnings surprises not accompanied by matching revenues surprises." In numerical terms, the research concluded that revenue surprises provide another valuable signal to investors since when stocks were screened for revenue and earnings surprises, the difference between abnormal returns in this category was 8.41% which was nearly two percentage points higher than the difference for stocks screened only for earnings surprises.

So, as it appears that revenue is an equally important part of stock valuation, we decided to look at Ray Dalio's top revenue growth stocks.

Our Methodology

To make our list of Ray Dalio's top growth stocks with 30%+ revenue growth, we first filtered the 230 largest positions of Bridgewater Associates by investment value to pick out only those stocks with an absolute revenue growth greater than 80% for the past three years. Then, these stocks were further filtered with their 1-year revenue growth, and those with a growth higher than 30% were selected. These stocks are ranked by the value of the firm's stake in them during Q1 2024.

We also mentioned the number of hedge funds that had bought these stocks during the same filing period. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A customer in a travel agents office, highlighting the convenience of the companies corporate travel solutions.

Trip.com Group Limited (NASDAQ:TCOM)

Number of Hedge Fund Investors  in Q1 2024: 49

1 Yr Revenue Growth: 123%

Bridgewater Associates’ Q1 2024 Stake: $32.7 million

Trip.com Group Limited (NASDAQ:TCOM) is another stock that's riding the wave of the coronavirus recovery. This is because it belongs to the global travel industry, which has continued to recover over the course of the past three years. By Q1 2024 end, Trip.com Group Limited (NASDAQ:TCOM) earned CNY11.9 billion in revenue for a 24% annual growth. Another China focused company, Trip.com Group Limited (NASDAQ:TCOM) can benefit from similar government incentives such as visa free travel like LVS. However, its scale allows it to target the broader Asian region, which means that if China opens its borders, then Trip.com Group Limited (NASDAQ:TCOM) can capture a lot of the travel volume growth due to its market positioning. It is also creating new products for its existing customers, by initiatives such as a deal with Proticket to increase travel suppliers on its platform; and greater penetration into second and third tier Chinese cities due to improved travel infrastructure such as roads and hotels.

Trip.com Group Limited (NASDAQ:TCOM)'s scale also provides it with the benefits of economies of scale to control margins. Here's what management had to say on this front during the Q1 2024 earnings call:

“Yes, we have achieved a healthy margin level for our domestic business, thanks to the large scale and scalability that we achieved. And the outbound business normally have a slightly higher margin, thanks to the average higher selling price. And at the same time, related to the cost, including the service cost, the product development cost, as well as sales and marketing costs are quite similar to the — compared with the domestic business. So therefore, outbound travel normally is the higher-margin business for us. With regard to the Trip.com business, as I said before, we closely — although the Trip.com business has [indiscernible] in the investment period, however, we closely monitor the contribution margin of the Trip.com business.

And recently, our Trip.com business as a whole has achieved at least a breakeven level in terms of the contribution margin. And in the longer-term period, we strongly believe that the Trip.com business will also become a profitable, healthy growth business in the future. So in summary, we expect our margins to align with — will be aligned with the typical seasonal patterns, reflecting the strong business growth and disciplined cost management. And looking ahead, our margin expansion will primarily stem from operational scalability and approve the sales and marketing efficiencies. However, this may be partly offset by additional expenses associated with expanding our international operations.”

Overall TCOM ranks 4th on our list of the stocks with 30+% revenue growth. You can visit Ray Dalio’s Top 10 Growth Stock Picks with 30+% Revenue Growth to see the other growth stocks that are on hedge funds’ radar. While we acknowledge the potential of TCOM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TCOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.