The #2 car rental company in China, eHi Car Services (EHIC) has a great trajectory of growth—plus, I like to think it tries harder.
After coming public in November 2014, the stock made a little progress in the first four months of the year, but trading volume remained light. Then, in mid-May, volume mushroomed rapidly, as buyers moved in, driving the stock from 11 to 14 in the days before the company’s first-quarter earnings were released. Happily, the report justified their buying!
eHi’s revenues increased 61% from the year before, driven mainly by a 74% increase in car rental revenues. The company’s fleet size increased by 82% to 24,362 vehicles. And most importantly, the company swung from a loss to a tiny profit.
Looking ahead, management estimates that full-year revenues will grow approximately 76% to 88% from the year before, and that the company will end the year with a fleet of 37,000 to 40,000 vehicles, representing an increase of 87% to 103% from year-end 2014.
The stock has recently corrected from a high of 18 to the 14 region, where it is likely to find support, and if it does so, I will continue to rate it a buy.
Timothy Lutts, Cabot Stock of the Month, www.cabot.net, 978-745-5532, July 2, 2015
