China Lodging Group (HTHT) is a Stock on the Radar — unfortunately.
I’ve been watching HTHT since July 15th. The stock reported earnings on July 29th. The estimate was 10 cents a share, the company made 5 cents a share or 19 cents, depending how you looked at the figures. After researching it, I wrote 5 cents in my notes.
Now HTHT has gone from $14 on July 15th to $24 today. Thomson Financial says the company made 19 cents last quarter — not 5 cents. This was 9 cents better than estimates — no wonder the stock took off.
In July I passed on HTHT because the P/E was 47. With this being a new stock, I didn’t have certainty, and 46 times earnings is a high price to pay for a stock without certainty. Now the P/E is 46 — so even though the stock’s been on a tear it’s no more expensive than it was.
Annual Estimates Jumped
The reason the stock jumped was because 2010 earnings estimates popped. Notice in the earnings table (right) the company was expected to make $0.32 back in July. Now that figure is $0.52.
My thinking is investors feel this stock is worth around 45 times earnings, and when estimates increased from $0.32 to 0.52 the stock went from 46×0.32 = $15 to 46x$0.52=$24.
What to do now
The market is really overbought right now. My feeling is we are bound for a cooling off period. When markets get hot the top stocks sky higher — exactly what HTHT did.
But if the market cools and this stock simmers down, my guess is it will give back half its gains. $15 to $25 is a $10 move — so $20 is the midpoint. $20 might be the price I look for.
