Tweedy Browne ( Trades , Portfolio ) Global Value Fund purchased 26,265,000 shares in Emperor Entertainment Hotel (HKSE:00296) at an average price of 1.77 Hong Kong dollars (23 cents in U.S. currency) in the second quarter.
The trade had a 0.09% impact of the Tweedy Browne (Trades, Portfolio) Global Value FundAAAs portfolio.
Emperor Entertainment Hotel is the hospitality and gaming arm in Macau under its parent company Emperor International Holdings Limited. The company operates two hotels in Macau AAAAA the Grand Emperor Hotel, which has 300 rooms, and the AAAEmperor Palace CasinoAAA that spreads over six floors.
Emperor Entertainment Hotel has a market cap of 2.36 billion Hong Kong dollars, an enterprise value of 1.69 billion Hong Kong dollars, a price-earnings (P/E) ratio of 8.85 and a quick ratio of 4.69
According to GuruFocus Emperor Entertainment Hotel has a 7 of 10 financial rating with an Altman Z-Score of 2.11 indicating it is in some kind of financial stress and could potentially file for bankruptcy in the future. The company has a 7 of 10 profitability and growth rating with revenue growth of -5.60%, EBITDA growth -21.40% and EPS growth (three years) of -22.30%, ranking it beneath 79% of the 531 companies in the global lodging industry.
The Tweedy Browne (Trades, Portfolio) Global Value Fund likely purchased the stake because the company is in a lucrative industry, and it has tremendous earnings power (8.65 Hong Kong dollars) if it can continue to attract customers to its casinos and hotels.
Emperor Entertainment has five severe warning signs, according to GuruFocus:
- The company has poor quality of earnings, according to its current Sloan ratio (-32.31%), which means its reported earnings are more likely to be made up of accruals.
- The companyAAAs per share revenue has been in decline over the previous three years at an average rate of -5.60%.
- The companyAAAs gross margin has been in a five-year decline. The average rate is -2.3%.
- The companyAAAs operating margin has been declining at an average rate of -2.3% over the last five years.
- The companyAAAs asset growth is faster than its revenue growth, which means that the company may be getting less efficient.
The Global Value Fund seeks long-term growth of capital by investing in securities located in countries throughout the world. The fund looks for value primarily outside the U.S., and its investments are primarily in developed markets and, where practicable, perceived foreign currency exposure is hedged back into the U.S. dollar.
Cheers to your investment success.
Disclosure: Author does not own any shares of this company.
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This article first appeared on GuruFocus .