Just prior to the Beijing Olympics in 2008, I wrote an article about the booming travel business in China. Well-known investor Jim Rogers was on record that the Chinese themselves would spend huge amounts on domestic and foreign travel as their standard of living rose and travel restrictions eased. One company benefiting from this growth is Universal Travel Group (NYSE:UTA), a micro-cap holding company whose mission is to become the country's largest travel business. With foreign travel on its radar, I'll look at why its stock remains a steal.
IN PICTURES: 4 Biggest Investor Errors

How It Makes Money
Universal Travel Group's three revenue streams include packaged tours, hotel bookings and airline ticketing. It currently focuses on the domestic tourism market for both leisure and corporate travelers. Packaged tours represent 69% of its revenues with hotel and airline reservations accounting for the rest. In terms of profitability, the hotel and airline business delivers much higher gross margins than the packaged tours. However, its dominance in packaged tours in comparison to competitors Ctrip.com (Nasdaq:CTRP) and eLong (Nasdaq:LONG) provides a nice barrier to entry.

Future Growth
In late January, it was awarded an international travel license by China's National Travel Authority, which gives it the right to sell package tours directly to its clients for destinations outside China. Prior to the awarding of this license, it had to go through other agencies, which obviously affects profitability. Chinese tourists spend approximately $44 billion on travel outside the country, so this could be a big deal.

In 2010, UTA signed a deal with Agoda, Priceline.com's (Nasdaq:PCLN) Asian subsidiary. Under the terms of the agreement, Agoda would provide Universal Travel Group with access to its international network of hotels. Most importantly, it would work with the company to improve its cnutg.com website. This is vital when you consider the negative press it's received from Bronte Capital and Henry Blodget about the legitimacy of its business. While neither may truly understand Universal's business model, any negative press about its online operations is counter productive. Known primarily as an offline travel provider, over the past two years it opened approximately 2000 kiosks throughout China. The interactive terminals allow customers to research and make travel arrangements just as they would online. It's all about meeting the customer where they live. Lastly, it continues to buy travel agencies. In the third quarter ended September 30, acquisitions accounted for $11.6 million or 25% of its $46.3 million in revenue. With $56.7 million in cash, it is likely we'll see acquisitions continuing.

Attractive Valuation
While its detractors doubt its business model, I see nothing but growth. At the end of the third quarter, it projected full-year 2010 revenues between $145 million and $155 million with earnings per share of at least $1.35 excluding stock-based compensation. Five years ago, revenues were just $10 million. Its price-to-sales ratio in April 2008, when I wrote my previous article about the company, was 0.94 and today it's the same, despite sales and profits doubling. If you include Orbitz Worldwide (NYSE:OWW) and Expedia (Nasdaq:EXPE) with the three competitors mentioned earlier, its price-to-earnings ratio is one-twentieth of its peers.

Bottom Line
Either Priceline.com management is foolish, or this is a legitimate business that's severely misunderstood. It's up to you to determine if the reward is worth the risk. I believe it is. (For related reading, also check out Top New Trends In Airline Travel.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center