Why China Lodging's Shares Went South
Jul 12th 2012 3:11PM
Updated Jul 12th 2012 3:24PM
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Investors were checking out of Chinese hotel operator China Lodging Group's (NAS: HTHT) stock today, causing the stock to fall as much as 15% in intraday trading.
So what: In a press release today, China Lodging announced preliminary results for the second quarter. Revenue per available room, or RevPAR, across the company's hotels was 176 yuan for the quarter, up 4% from last year. For hotels that were open at least a year, RevPAR was up 7% to 195 yuan, thanks to 3% growth in the rates the hotel was charging and a 4% gain in occupancy.
Now what: The results that China Lodging announced were clearly in the right direction. The company's CEO underscored that point, crowing that the company delivered "a solid quarter." But based on the share price action, investors don't seem to agree.
Are investors correct in their assessment? I'm not so sure. Excluding the recently acquired Starway Hotels, the company's hotel count has increased by 46% from the second quarter of last year. Combine that with the increases in RevPAR, and there's still good reason to believe that the company could hit its projected year-over-year revenue growth of 35% to 38%. Traders do seem to be reconsidering how bad they think the news is, as the stock's losses have moderated significantly.
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