Bell Hop at Home Inns

Watching economical hotel chain Home Inns & Hotels (Nasdaq: HMIN) is a lot like observing an aggressive Monopoly player in action. There's a lot of activity. A lot of those red hotels go up. However, all that outlay leaves little money left at the end of the day.

The fast-growing chain of 171 Chinese hotels for value-minded travelers posted a 68% spike in revenue for its latest quarter. The company announced a small profit of $0.08 per ADS, slightly less than what it earned a year ago.

Don't let the dip dissuade you. That's what happens when you're circling the board, barking out "give me a hotel" 26 times over the span of three months. It's hard to post much of a near-term profit at that pace. Adjusted EBITDA -- a kinder measure that dismisses much of the related tab, as well as backing out foreign exchange costs and stock-based compensation -- rose 60% over the past year, and spiked 83% sequentially.

Home Inns' hotels are clearly popular, with guests paying an average of $24 a night for a room. Occupancy rates of 95% would make most Western operators drool, but don't take my word for it. Here's how some of the better-recognized chains fared in the second quarter:

Clearly, having 19 out of 20 rooms spoken for -- on average -- in any day is pretty amazing stuff. However, that's actually less than the 98% occupancy that Home Inns aced during last year's second quarter. Revenue per available room fell by 4% over the past year, owing to the dip in occupancy and a 1% decrease in the average daily rate.

Don't let that alarm you. Home Inns is expanding into second-tier cities now, and lower rates are necessary to fill up the register in new, smaller markets.

Like most Chinese stocks, Home Inns is toiling away in a booming economy. It also stands to be one of the biggest beneficiaries when next summer's Olympic Games come to Beijing. Travel-booking specialists like Ctrip.com (Nasdaq: CTRP) and eLong (Nasdaq: LONG) are getting most of the market attention, but don't forget that folks will have to stay somewhere, too.

Home Inns isn't exactly cheap. It's trading at 46 times next year's earnings, and those profits might be hard to come by if our frenetic Monopoly player keeps putting on hotel after hotel. All but 54 of the 171 locations are company-owned.

Still, isn't that the way you would play Monopoly if you could? It's risky, but it's often the best way to win the game.

Related Foolishness:

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Longtime Fool contributor Rick Munarriz has been a fan of China's high-margin stocks for a long time. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool's disclosure policy leaves a mint on your pillow.