Day: October 15, 2006

Last Updated on October 15, 2006 by stlplace

I read the F-1 Form in the weekend. While I am not a financial analyst, I have the following comments.

1) Home Inns probablly has the best management or directors. Three of its directors, Neil Shen, James Liang, and Qi Ji are founders of Ctrip and have extensive experience on Investment, travel and IT industry.

2) Business outlook: the economy motel in China is booming, because of the increasing business and leisure travellers. There are 2 strong competititors: Jin Jiang Star and Motel 168. I stayed in Jin Jiang star and they are good too. I heard from Motel 168 from Taxi driver (later I found Wang Jianshuo mentioned it in his blog.)

3) Consumer experience: fair. It’s clean. But the rooms in Shanghai Pu Xi areas are ususally old and its condition are not great (sound insulation, bugs, etc.) The staffs are usually friendly (above average in China), but can not compared with the “customer first” attitude in the US.

4) Risks: The directors and management award about 650,000 shares of stock options on Oct 2 (before this public offering), while this does not dilute the stock too bad, it’s something they do for their own benefit. Of course the biggest risk is the China economy slow down. I am not an economist, but I know an economy can not run at this speed (10% growth annually) forever.

Last Updated on October 15, 2006 by stlplace

I’ve covered the “buying” in my last post. I want to add a little more about “buying” here and then jump into “selling”. I think the quality of the stock (a company business, especially the management and the moat) is more important than the price itself in the long term. 

For the managment of a company, I like to see a team of experienced, growth minded and honest people (remember Enron and WorldCom). As for the moat, it’s something Warren Buffett likes to emphasize), basically it’s the competitive edge of a company. For example, it’s difficult to break into cola market because Cokecola and Pepsi have established in the market very well. On the other hand, Google broke into the “web search” market because a few years ago Yahoo did not pay enough attention to this technology. Besides great product and service, good customer relationship is also important. Buying a stock of a good (solid) company gives you more “margin of safety”. Even if sometimes things go wrong, say a company missed a quarterly earning because of a one time event (say, Coke messed up with their product and made customer unhappy). They ususally recover from it later on, because of the good management and moat.