It's a stock with a view. Home Inns & Hotels (NASDAQ:HMIN) has served its investors well since going public five months ago at $13.80 a pop. The stock has nearly tripled since then, and we can turn to Home Inns' fourth-quarter earnings report to help shed some light on the reasons for the heady gains.
Revenue soared 81% to hit $22.9 million. Earnings per share came in at $0.02 per share. That profitability may not seem like much, but that's the price you pay for rapid expansion. Over the past year, Home Inns has grown from 68 to 134 locations, with another 48 inns currently in development. That grants the company the luxury to project an impressive 60% to 70% top-line spurt here in 2007.
Why is Home Inns so bent on breakneck expansion? Pick a reason, any reason:
- The 2008 Olympics will bring a plethora of foreign travelers into China.
- China's booming economy is making travel a popular leisurely pursuit.
- Occupancy rate clocked in at a stunning 93% for all of 2006.
That occupancy rate is amazing. Keep in mind that Hilton (NYSE:HLT) is hailed as a Western hero, yet its occupancy rate for last year came in at a relatively modest 77%.
Home Inns is doing so well because it's angling for the mainstream local traveler. These aren't massive properties. The inns have an average of 120 rooms, and the typical guest will pay about $21 a night. That may not seem like much, but it will grow as the country's economy flourishes.
This isn't the only way to play travel stocks in China. Ctrip.com (NASDAQ:CTRP) and the slower-growing eLong (NASDAQ:LONG) offer the opportunity to buy into companies that specialize in booking travel. The hospitality industry's hiring needs may also shine kindly on employment listings specialist 51job (NASDAQ:JOBS). All of that traveling is going to make folks anxious to phone home, so let's go ahead and toss China Mobile (NYSE:CHL) and China Telecomm (NYSE:CHA) into the pot of players sitting pretty here.
It obviously won't be a straight skyward trajectory. Last week's hiccup in Chinese stocks should have grounded your expectations. Home Inns also is tagged with a lofty P/E multiple, which may be easily misunderstood by unsophisticated investors who don't understand the costs related to growing a lodging chain so quickly.
So expect volatility, and learn to profit from the likely gyrations. If you want a good night's sleep, check in to one of the company's many establishments. If you want to check out as a winner, consider digging deeper into the Home Inns story.
Ctrip is a Hidden Gems stock pick. If you want to know why, pack your begs and check in for a month-long stay. The 30-day trial subscription is free.
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 has a disclosure policy.
