via Sven Carlin:
Even if HTHT’s stock is already 37% below its 52-week high, there is more room to fall. Its valuation is stretched when compared to its outlook and competition.
Both Huazhu and its competition have big growth plans. Expansion within a market with low occupancy rates should improve margins.
Red flag: using a loan of $550 million to buy stocks is a risky move.
Huazhu Group Limited (HTHT) is a very tempting stock. Who wouldn’t want to own a Chinese hospitality stock operating in a market that is growing at 15.9% per year.
Figure 1 The Chinese travel market is growing at a faster pace than the Chinese retail market
In line with the above image, HTHT has seen revenue growth of 26% in the last quarter. Unfortunately, not all that shines is gold.
The video contains the following:
(0:52) – Company overview where I explain its business model, growth story and discuss its core business.
(2:29) – When a company from China, takes a $550 million loan to buy a 4.5% stake in a French hotel company from the open market, you have to be worried.
(3:55) – I created two small earnings models to see what kind of growth and valuation would justify the current stock price.
(4:40) – Comparing HTHT with Shanghai Jin Jiang Group (OTC:SJJIY).
The video ends with a discussion of the risks from low occupancy rates and one on the fair value of HTHT and what could be a possible short strategy. Enjoy the video.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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