Bear of the Day: Huazhu Group (HTHT)

Huazhu Group Limited HTHT is a hotel operator and franchisor primarily in China. The company focuses on economy and midscale hotel segments and operates over 7,000 hotels. Formerly known as China Lodging Group, HTHT was founded in 2005 and is based out of Shanghai.

The Zacks Rundown

Huazhu Group, a Zacks #5 Rank (Strong Sell), experienced a climax top in February 2021 and has been in a price downtrend for nearly the past year. The stock is hitting a series of 52-week lows and represents a compelling short opportunity as the market continues its volatile start to the year.

HTHT is part of the Zacks Hotels and Motels industry group, which is currently ranked in the bottom 9% out of all 254 industry groups. We expect this industry group to underperform the market over the next three to six months. Candidates in the worst-performing industries can often represent good shorting opportunities, as their industry performance provides a headwind to any rally attempts.

Recent Earnings and Future Estimates

Over the past three years, HTHT has missed earnings estimates in seven of the twelve quarters. The company has posted a trailing four-quarter average earnings miss of -48.29%. Consistently falling short during earnings season is a recipe for underperformance. Back in November of last year, HTHT reported a Q3 loss of $-0.07, a -200% miss from the $0.07 gain that was expected.

Analysts have been revising future estimates downward as of late, with 2022 EPS consensus declining by -49.62% to $0.67. Consensus earnings estimates are falling across the board along with the stock, a good sign for the bears:

Huazhu Group Limited Price, Consensus and EPS Surprise

Huazhu Group Limited Price, Consensus and EPS Surprise

Technical Outlook

The stock entered a downtrend last year and has been steadily falling ever since. Notice how the 200-day moving average acted as resistance during the summer and fall months last year, with a decisive move lower in late November:

Zacks Investment ResearchImage Source: Zacks Investment Research

HTHT stock has continued its descent to kick off the new year, falling nearly -7% this month. Even with the recent price decline, the stock is still relatively overvalued which could hurt performance in the short-term:

Zacks Investment Research

Image Source: Zacks Investment Research

Final Thoughts

A variety of headwinds including the continued COVID-19 pandemic will continue to negatively impact company performance. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, fostering the stock’s downtrend.

HTHT’s characteristics have resulted in an overall “D” VGM score, and the company is part of an industry group that ranks in the bottom 9% of all Zacks Ranked Industries. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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