E-House (EJ) is the leading real estate services company in China, with a large scope of services, good brand recognition and a strong geographical presence. Sure, in the current financial and economic environment, the company was hit hard like everyone else. But since then, E-House shares have recovered nicely. The stock actually is up a whopping 143% since November 20.
What caused this drastic turnaround?
The Chinese government’s stimulus package. As part of the plan, banks in China have lent out $730 billion in the first quarter of 2009, allowing money to flow like water down a river. And a large portion of this money is flowing into the Chinese real estate industry.
During my recent visit to E-House, I wanted to find out how this money flow was affecting the company and what it meant for our investment in it. We met with Michelle Yuan, the director of investor relations for the company. In the three previous meetings with her, she was always honest and forthcoming about the good and bad news of the company. And this time was no different.
We learned four key things about E-House:
- Higher Sales Volume — Real estate sales have picked up dramatically since the company’s earnings call in March, with March sales up 100% from last year’s level.
- Fast-Growing Information Service/Consulting Business — The company’s proprietary real estate database subscription and consulting business grew by an astounding 400% in 2008, with a 46% profit margin.
- Higher Market Share & Pipeline — With E-House profiting from more sales, the company will continue to benefit greatly from developers lowering home prices to speed up sales.
- Potential for Earnings Surprise — The Street is expecting only $0.09 for earnings per share in the second quarter, but according to Michelle and other E-House management, the company is on track to post 15 cents per share at the current business pace.
All of these findings were exactly what I was hoping to find on my visit to E-House. This company has a firm grasp on China’s real estate industry, and sharply higher business, low analyst expectations and improving fundamentals — all this points to sharply higher prices for E-House shares.
That’s why I recommended that my China Strategy subscribers start purchasing E-House shares again. Now is a great time to take advantage of the company’s low share price and to bet on much higher prices this year.
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