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China Lodging Looks Good After a $34 to $150 Move

Stock (Symbol)

China Lodging Group (HTHT)

Stock Price

$150

Sector
Food & Necessities
Data is as of
January 30, 2018
Expected to Report
Mar 12
Company Description
HTHT is a holding company. The Company is a multi-brand hotel group in China with leased, manachised and franchised models. Under the lease model, the Company directly operates hotels located on leased properties. Under the manachise model, the Company manages manachised hotels through the on-site hotel managers the Company appoints and collects fees from franchisees. Under the franchise model, the Company provides training, reservation and support services to the franchised hotels and collects fees from franchisees. The Company has approximately 620 leased hotels; over 2,070 manachised hotels and approximately 80 franchised hotels in operation and over 20 leased hotels and approximately 660 manachised and franchised hotels under development. The Company offers approximately seven hotel brands that focus on various segments of customers: Joya Hotel, Manxin Hotels & Resorts, JI Hotel, Starway Hotel, Elan Hotel, HanTing Hotel and Hi Inn. Source: Thomson Financial.
Sharek’s Take
David SharekChina Lodging (HTHT) is a hot stock that still looks good after a two year climb from $34 to $150. China Lodging is a hotel group within China that’s taking the country by storm with a manchised model which combines the benefits of franchising with managing the property. As of December 31, 2016 it had 624 leasedĀ and owned hotels, 2471 manchised hotels and 174 franchised hotels in operations with 15 leased/owned and 427 manchised hotels under development. The company has 8 hotel brands, listed below with the number of hotels at the end of last year in parentheses:

  1. HanTing (2181) was the first brand created in 2007 and is the economy brand with quality, convenience and value.
  2. Hi Inn (375) targets price-conscious travelers who don’t mind a compact room.
  3. Elan Hotel (185) is its economy hotel for young urban tourists with a modern nature design.
  4. JI Hotels (284) are for city business travelers and deliver 3-4 star experiences with competitive rates.
  5. Starway Hotels (136) are for middle-class travelers who like three or four star hotels but at competitive rates.
  6. Joya Hotels (6) target affluent travelers and corporate events. They offer complimentary breakfast, free mini bar drinks and massage cabins.
  7. Manxin Hotels (2) have amazing space designs in holiday resort areas with quality rooms and rich meals.
  8. Additionally, HTHT acquired the Crystal Orange (100) hotel chain on May 30, 2017.

China Lodging is a stock I owned earlier in the decade — and sold it when fundamentals deteriorated and research (earnings estimates) became limited. My mistake was dropping coverage, thus when HTHT broke out at $34 on March 14, 2016 I wasn’t paying attention. Now I’m trying to get back in. But after the parabolic move the last two years, I’ll have to remain patient and look to acquire the stock again on a pullback. These charts are too bullish.

One Year Chart
So profits have been great the past year, and next qtr’s profit estimates just got a huge boost from $85% to 167%. Thus, the stock is still a rapid growth which is beating the street and upping estimates. That’s the recipe to becoming a hug winner. The P/E of 34 is fine as theĀ Est. LTG is a robust 49% per year.
Fair Value
Right now HTHT is fairly valued in my eyres, but increases in 2018 estimates would make me boost my Fair Value. Last qtr, estimates jumped. 2017 from $2.80 to $3.07. 2018 from $3.49 to $4.37. 2019 from $4.39 to $5.70. Huge.
Bottom Line
China Lodging broke out in March 2016 at $34 after it beat the street and upped guidance four days earlier. Since then the stock has been on a tear. Although the stock sells for a reasonable 34x earnings, this looks dangerous to buy in now. I’m waiting for China Lodging to come down a bit — or base for a year — to get a safer entry point. Chinese stocks corrected in 2015 and 2016 and that created magnificent buying opportunities. HTHT is on my radar for the Growth Portfolio.
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