It's a stock with a view. Home Inns & Hotels
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
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
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.
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.