Home Inns Conquers Wall of Worry

08/10/2012 4:32 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

The short squeeze is on, as the Chinese hotel chain beats almost unrealistic earnings expectations, and guided aggressively again for the next quarter, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

The ADRs of Home Inns and Hotels Management (HMIN) dropped another 2.53% yesterday, as traders continued to sell into the company’s after-the-close second-quarter earnings report.

Surprise! The Chinese budget hotel company delivered enough to confound sellers. And to disappoint those of us hoping to buy more on any sell-on-the-news dip. (Home Inns and Hotels Management is a member of my Jubak’s Picks portfolio.)

The ADRs were headed to a gain of 4.15% in the minutes before the August 10 close.

The company reported earnings of 34 cents an ADR, 3 cents above the Wall Street consensus. Revenue came in at $228.2 million, well ahead of the $214.8 million consensus. That was good enough for 60.2% revenue growth from the second quarter of 2011.

But what really turned sentiment, in my opinion, from sell to buy was the company’s guidance for the third quarter: $243 million to $248 million in revenue—versus the $238.3 million consensus. The company also increased guidance for all of 2012, to $899.6 to $914.5 million in revenue, against the $871.9 million analyst consensus.

As of August 10, I’m raising my target price slightly, to $34 a share by May 2013.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Home Inns and Hotels Management as of the end of March. For a full list of the stocks in the fund as of the end of March, see the fund’s portfolio here.

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