Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes – just in case they're material to our investing thesis.
What: Shares of 7 Days Group
So what: The drop shouldn't surprise many investors, since 7 Days Group's stock has been on a tear over the past six months. Today's downward pressure comes after the bullish news last week that its hotel expansion in China is occurring at a faster pace than it had originally anticipated. With the Nasdaq having a rough day, many high-growth Chinese names seem to be following suit to the downside.
Now what: The bullish news last week seems to have ceded -- at least for the moment -- to a more realistic valuation approach to 7 Days' stock. Chinese companies have been trading at inexpensive price-to-book ratios recently, pricing in the accounting scandals that have been prevalent among the group. With 7 Days Group at a price-to-book ratio greater than 5, investors are wondering if this might not be overvalued. Short-sellers have also dramatically increased their presence over the past month. I don't think today's move should change your initial investment thesis on the company, but the growing short presence is definitely worth watching.
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