China Lodging Group, Ltd (ADR) (NASDAQ: HTHT) is one of the leading hotel operators in China. It owns or operates more than 3,700 properties, with around 380,000 rooms.
To compare, Marriott International Inc (NYSE: MAR), has 6,500 properties in 127 countries with about 1.2 million rooms.
One thing to bear in mind however, is HTHT was founded 13 years ago. And, at this point all those properties are in China. Also, HTHT’s market cap is around $9 billion; MAR’s is around $47 billion.
That’s a hotel management firm that is half the size of MAR that trades at a valuation one-fifth that of MAR.
Also consider that even as China emerges from its slowdown, it’s still growing at about 6.9%. The U.S. and much of the rest of the developed world is still keeping its fingers crossed for 3% growth themselves.
Certainly, expanding its operation would seem to be the next logical step for HTHT, but there is still plenty of untapped potential in its massive, growing local market. There are 15 cities in China with over 10 million people in them — 260 million people in just those 15 cities.
The US has no cities with 10 million people. New York is closest with 8.5 million, but Los Angeles, the next largest has fewer than 4 million.
This is one thing many Westerners can’t wrap their heads around — the sheer number of people in the Chinese (or Indian) economy.
What that means for HTHT is a lot more opportunity in the domestic market before it has to do battle with major international brands off its home turf.
HTHT is a local firm that knows the markets better than most outside hotel chains and knows how to turn around properties, appeal to Chinese tastes and make money doing so.
Despite a Miss, HTHT Earnings Impressed
In mid-March, HTHT released it Q4 numbers. And while it missed analysts’ revenue estimates, its business was still very strong, up 41%. For the year, revenue was up 32% and earnings were up 36%.
But digging a little deeper, you can see why HTHT stock is up nearly 110% in the past year.
The average daily rate — the rate the company gets for each room it books — continues to rise. It rose about 10% for the quarter and is up 13% for the year as HTHT shuts down lower-quality properties and upgrades other properties.
And revenue per available room — how much people actually pay for rooms, another important sign of profitability — was up around 15% for the quarter and year. Occupancy rates are also rising.
The best news: HTHT is off 16% year to date. That means there’s a solid opportunity to move into this stock while it’s slowed down a bit. China has a massive, expanding middle class and those people are interested in traveling. For many that wasn’t a practical option years ago, especially not with modern accommodations.
What’s more, HTHT has a strong presence in the market, which means the big boys like MAR are the ones trying hard to be competitive.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.