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Estimates are Eroding

February 24, 2017 / By /
Stock (Symbol) Stock Price

China Lodging Group (HTHT)

$17
Data is as of Expected to Report Sector

June 28, 2011

Jul 25

Retail & Travel
Sharek’s Take
David SharekI just finished researching the Chinese Hotel sector. The group of stocks had two things in common:

  1. The companuies all missed estimates. The range was 2 cents (7 Days Group (SVN)) to 7 cents (HTHT).
  2. The companies had Annual Profit Estimates lowered. The amounts weren’t much but enough for me to think estimates could erode in future quarters.

HTHT isn’t timely. I’m going to sell the stock today and keep it on my radar. I’m a big backer of the Chinese hotel boom in the long run, not the short run.
One-Year Chart
China Lodging is really dead right now. The stock hit a high of $22 earlier in the year and just broke back down. There’s a lot of questions regarding Chinese stocks in that some companies have been fraudulent in reporting their financials. I don’t think that’s the case with HTHT, but I do think it will hurt new investments into the area.
 
Estimated Long Term Growth rate just fell from 45% to 17%.
Earnings Table
HTHT posted a loss last quarter, and we were expecting a profit. What irked me was the CEO was positive in the beginning of the conference call (mentioning a positive number of hotel openings, etc). What the? I mean, shoot me straight.

HTHT missed estimates by 7 cents. I was expecting a 3 cent profit, the company delivered a 4 cent loss. 
 

Annual Profit Estimates eroded slightly. Eroded is the name of the game with these Chinese hotel stocks. Estimates fall each quarter, ever so slightly. I love the anticipated growth in 2012 and 2013 — this stock could be a huge winner someday.
 
Profit growth the next four quarters are on the decline. 
Fair Value
I had to take HTHT’s Fair Value P/E down from 40 to 30 (it was 45 two quarters ago). This $17 stock seems to be worth $14. Upside next year is great, but that’s next year.
Ten-Year Chart
China Lodging went public in March 2010, opening at $13.50. 
 
Profits are set to fall this year, but the company is on a great run of raising profits every year.Here’s its annual profits, including pre-IPO:
2006 -0.06
2007 -0.25
2008 -0.33
2009 0.11
2010 0.56
Power Ranking Bottom Line
Growth Portfolio

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I love the stocks in this sector and feel as though we could really be on to something if we buy and hold. But 2001 isn’t shaping up well, as estimates are eroding, and I could put that money to use in better stocks.

I will sell HTHT in the Growth Portfolio today. The stock isn’t timely and is a little overvalued. I’ll keep this on my radar.
Aggressive Growth Portfolio

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2 thoughts on “Estimates are Eroding”

  1. Pingback: China Lodging Goes Parabolic As Profits Soar – School of Hard Stocks

  2. Pingback: China Lodging Looks Good After a $34 to $150 Move – School of Hard Stocks

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