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Bought 30 HMIN shares (Chinese Home Inns and Hotels Management) on September 30 October 6, 2010

Posted by deminvest in China stock, HMIN, HOT, investment strategies, MAR.
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After exchanging a few ideas with Andrew about which kind of risk I like to take, I decided to actually take  risk for my September stock pick.

Chinese growing business community will need to travel and sleep out. So I chose HMIN, a large chain of economy hotels in China. This was my order on Etrade:

Thu Sep 30 11:55:36 2010 Buy 30 HMIN Executed @ $49.13

not very inviting Hotel by our standards, probably extremely cheap

What made me chose this hotel chain are its good growth numbers:

Qtrly Revenue Growth (yoy): 25.70%

Qtrly Earnings Growth (yoy): 35.30%

The company has more cash (136 M) than debt ( 26M).

The stock is extremely expensive:

Trailing P/E (ttm, intraday): 50.11
Forward P/E (fye Dec 31, 2011)1: 31.47

If the company keeps its growth rate the stock will fly. Otherwise it will bust.

I wanted to compare HMIN to other hotel chains. I found out it is not very easy. IHG, Intercontinental Hotel Group, owns great brands like Holiday Inn, but is just a lean Franchisee. As I compare it to HMIN, I have to notice IHG has less direct employees (4000 compared to 15000).

I also like to compare HMIN to westner hotlel chians like Starwood Hotels & Resorts Worldwide Inc. (HOT)  and Marriott International, Inc. (MAR). Marriot has losses and is supposed to go back into black P/E=27 next year. Starwood has P/E around 129, expected to reach P/E=37 next year. Doth companies are hardly growing and have debt.

It maybe less risky to bet on HMIN continuing its growth than betting HOT or MAR will recover.


Comments»

1. Aida - October 6, 2010

very nice a website

2. andrew - October 6, 2010

Will keep an eye on this one. You’re right, stock pick risk🙂, but it could explode and give you big gains.

“If the company keeps its growth rate the stock will fly. Otherwise it will bust.”

You said it all with this sentence. It happened to me with CROX, beautiful numbers, but it couldn’t match analysts expectations, so it suffered a lot (making me suffer to hehe).

good luck

3. deminvest - October 7, 2010

When did you buy CROX?

4. andrew - October 8, 2010

around 2008, when I saw every single person wearing these ugly shoes and looked at the stock and it had awesome numbers. The problem is, as you have said, we never know what happens behind the scenes.

5. Deminvest - October 11, 2010

Andrew, in 2008 Crox was exactly the kind of risk I want to avoid taken (because I did take it several times!).

In 2008 Crox had already lost half of its value, while the Nasdaq and S&P were still stable:

http://www.google.com/finance?chdnp=0&chdd=1&chds=0&chdv=0&chvs=maximized&chdeh=0&chfdeh=0&chdet=1220644800000&chddm=105456&chls=IntervalBasedLine&cmpto=INDEXNASDAQ:.IXIC;INDEXDJX:.DJI&cmptdms=0;0&q=NASDAQ:CROX&ntsp=0

Of course numbers for Crox were still excellent: they had sold tons of shoes. Probably the stock had lost half of its value at the beginning of 2008 because Crox shoes were stopping being fashionable.

You risked trying to bargain on a fad that was coming to an halt, just like I did with Heelys or BIDZ for example.

I am now starting to believe it is better to risk that an expensive evergrowing star may stop to grow, rather than risk on an ex-star that “for some reason” lost half its value.

If I wanted to make a risky bet on oil industry, I’d rather go for Brazilian Petrobras, or Chinese CEO, which are booming stars, rather than go for BP hoping it will recover.

6. andrew - October 11, 2010

100% agree with you, but the reason why I mentioned CROX was because I bought around sept 2008, without knowing that their numbers were unsustainable. I read about the expansion to asia, etc… Few months after I bought this sucker, I started reading about concerns with “Inventory Levels”. Analysts raised doubts + Analysts said too expensive + quarterly results don’t meet expectations = Panic selling (me suffered) (just look at the 5y graph).

With CROX, I believed in what you said as well: “it is better to risk that an expensive evergrowing star may stop to grow”. Problem is, when is it too expensive to buy a share??

So, when you have HMIN and I read your comment “If the company keeps its growth rate the stock will fly. Otherwise it will bust.” made me think of my thoughts on CROX when I bought it, thinking about the billion chinese people buying new crocs🙂 (It hadn’t fallen in price – yet)

I made the same mistake with BIDZ, with the difference that I bought it when the share price had already been hammered, as opposed to buying it with higher price (thankfully I didn’t). I’m still at a loss,but heh, it could’ve been worse.

And that’s why I didn’t buy BP and went for V instead. V has a p/e of 20 and plenty of space to grow. Long term it’ll be a winner.

As I said, I’ll keep an eye on HMIN, if it still grows you’ll have your money back prettty soon..🙂

7. deminvest - October 12, 2010

I agree with you Andrew. Visa is in my radar too. Safer than HMIN and has good upside potential… Specially when Chinese will start traveling the World with their VISAs…🙂

8. cheng - December 2, 2010

The Chinese don’t buy Crocs. They buy Crocs-2s, the imitations!


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