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GreenTree Hospitality Group: A Chinese Stock That Could Breakout in 2021

Even though it’s been severely affected by the pandemic, GreenTree Hospitality (GHG) has been able to survive and position itself for when travel rebounds. With the gradual recovery of the Chinese economy, it is expected to turn the corner. The stock has a promising outlook as domestic travel in China increases

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Founded in 2004, GreenTree Hospitality Group Ltd. (GHG) is the leading hotel operator in China. The company has more than 15 high-quality brands and many sub-brands, such as Gem Hotel, Gya Hotel, VX Hotel, Deep Sleep Hotel, GreenTree Inn, Vatica Hotel, and Shell Hotel. With more than 4,066 hotels, GHG has further expanded its brand portfolio into mid-to-up-scale and luxury segments through a series of strategic investments.

While the hotel industry was massively impacted by the coronavirus, GHG remained resilient and highly adaptable. On July 15th, the Ministry of Culture and Tourism lifted restrictions on inter-provincial travel. With the gradual reopening of the Chinese economy, GHG has started recovering. The stock has gained 18.3% year-to-date. This impressive performance and the potential upside based on several factors have helped the stock earn a “Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates GHG:

Trade Grade: B

GHG is currently trading below its 50-day and 200-day moving averages of $13.39 and $13.25, respectively. However, the stock has gained 12.7% over the past six months, reflecting short-term bullishness.

For the second quarter ended June 2020, GHG’s number of franchised-and-managed ("F&M") hotels in operation increased 37.8% year-over-year to 4,031. The geographic coverage increased by 14.3% year over year. The number of Economy hotels in operation increased 161.2% year-over-year to 1,139. The number of mid-scale hotels in operation increased by 11.2% year-over-year to 2,610.

GHG will announce third-quarter financial results on December 2nd. The company opened 111 hotels in the second quarter and added a net opening of 68 hotels to its portfolio. Its overall performance was better than the average across the hospitality industry in China. In the words of Mr. Alex Xu, Chairman, and CEO of GHG, “The lifting of these restrictions has stimulated business travel and summer travel and helped the hospitality sector to deliver steady and improved performance.”

Buy & Hold Grade: B

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, GHG is well-positioned. The stock is currently trading 14.2% below its 52-week high of $15.17, which it hit on June 2nd.

GHG has consistently improved over the years owing to the opening of a greater number of hotels and strategic investments.

Peer Grade: B

GHG is currently ranked #27 out of 115 stocks in the China group. Other popular stocks in the China group are NetEase, Inc. (NTES), New Oriental Education & Technology Group, Inc. (EDU), and Baidu, Inc. (BIDU).

NTES and EDU beat GHG with 54.6% and 44.6% year-to-date returns, respectively, while BIDU gained 5.3% over this period.

Industry Rank: B

The China group is ranked #23 out of the 123 StockNews.com industries. China has been recovering fast from the grasp of the deadly virus. With the gradual re-opening of the economy, this group is expected to soar and reach new highs in the coming year with relaxation in travel restrictions.

Overall POWR Rating: B (Buy)

GHG is rated “Buy” due to its short-and-long-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

GHG has the potential to soar in the upcoming months despite gaining 18.3% so far this year, based on its continued business growth, and strong financials. With the Chinese economy witnessing growth, the company is well-positioned to gain going into 2021.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for GHG. It has an average broker rating of 1.14, indicating a favorable analyst sentiment. Out of 7 Wall Street analysts that rated the stock, 6 rated it “Strong Buy.” The consensus revenue estimate of $47.04 million for the quarter ending December 2020 indicates 15.1% growth from the same period last year. Its EPS is expected to grow 88.9% next year. This outlook should keep GHG’s price momentum alive in the near term. 

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GHG shares were trading at $12.88 per share on Tuesday afternoon, down $0.13 (-1.00%). Year-to-date, GHG has gained 17.09%, versus a 14.34% rise in the benchmark S&P 500 index during the same period.



About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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