2011 is the year to buy Home Inns & Hotel Management (HMIN). Home Inns is a top hotel chain in China. China’s hotel infrastructure hasn’t been built out yet — especially the budget segment which is where Home Inns is focused.
At the end of 2009 Home Inns had 616 hotels. It opened 200 hotels in 2010 and should open 250 in 2011. This is one of the fastest growing companies in the world.
One Year Chart
HMIN is on a big of a dip. The World Expo was in Shanghai during May through October last year. Room rates were great and hotels and occupancy high. So This stock was doing well. When the Expo ended October 31st, profits were taken.
I’ve been watching HMIN for more than a year. The stock usually sells for 35 to 45 times earnings. Last quarter the P/E was 34. The quarter before: 40. Three quarters ago it was 37. In the 4th quarter of 2009 the P/E was 43.
Right now HMIN’s P/E is only 24 — which is really good. Why? I think its because the company did so well last year, comparisons will be tough (on room rates, occupancy, etc.).
Earnings Table
Here’s where the red lies. In three of the next four quarters HMIN’s profit growth looks poor. “I think it’s, during the World Expo we nearly doubled our pricing in the Shanghai market” — Huiping Yan, HMIN CFO
2010 Annual Profit Estimates just increased, 2011’s fell a little, and 2012 figures jumped higher. During the past four quarters HMIN’s 2012 estimates have increased from $1.32 to $1.50 to $1.92 and now $2.23. The P/E’s fallen from 45 to 24.
Bottom Line
Conservatively, this company is worth 40 times earnings. In the long-run that should prove to be cheap. This company could grow at 30% a year for many, many years. Definitely worth 24 times earnings now, but with lackluster profit growth coming in 2011, we might have all year to buy HMIN stock.
I’m looking at 2012. $4.23 x 40 = $89 fair value. With the stock around $40, upside is substantial. 2011 is the year to buy this stock.
