Why Shares of Home Inns & Hotels Management Inc. Got Dumped

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: Shares of Home Inns & Hotels Management fell as much as 13%, and finished down 11% today after reporting fourth-quarter earnings last night.

So what: The Chinese motel-operator said revenue grew 9.8%, to $265.9 million, and earnings came in at 1.91 RMB versus estimates at 1.99 RMB. CEO David Sun acknowledged "the weak market environment" and "near term challenges in the macro environment," but said, "We continue to believe in the long-term growth prospects of China's travel and lodging industry." Sun also noted that Home Inns revenue growth has slowed due to a transition from a leasing and operating model to a franchise model, which should be a path to sustained profits.

Now what: Home Inns continues to expand at a rapid pace, adding 139 in the quarter, bringing the total to 2,180, and has 417 more hotel projects in the pipeline. As China's middle class gorws, the demand for budget lodging should increase along with it, and Home Inns' franchise, like that of American motel companies, seems poised to benefit from this organic growth. Revenue guidance, however, was a bit weak, as the company expects 7% to 10.2% increase in the top line, below estimates of 12.6%.

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The article Why Shares of Home Inns & Hotels Management Inc. Got Dumped originally appeared on Fool.com.

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