eLong Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese Internet travel agency eLong (NAS: LONG) leapt 11% in Thursday trading.

So what: It seems we can trace this bump right back to the friendly analysts at Brean Murray who yesterday upped their price target on eLong shares to $22 apiece.

Now what: Brean argued that eLong's "strong hotel volume growth" and "shift to online booking, and improved gross margins" make the stock worth 10% more than it was two days ago. Investors appear to agree -- almost to the percentage point.

But I don't. If you ask me, anybody willing to pay more than 200 times earnings for a Chinese small-cap Internet stock should have his (or her) head examined. For one thing, eLong still isn't providing shareholders cash flow information on a timely basis. Fact also is, even if eLong turns out to be generating as much free cash flow today as it managed to amass last year, the stock's still selling for something like 60 times free cash. That price is nearly as absurd as the stock's P/E makes it appear.

Long story short, I may not be courageous enough to go out and short the stock, but I'm definitely not foolish enough to buy it.

Would you go long eLong? Before you decide,add it to your Fool Watchlist.

At the time this article was published Fool contributorRich Smithdoes not own (or short) shares of any company named above. The Motley Fool has adisclosure policy.Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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