Accounting rules provide for asset-Intensive-Businesses large Loopholes, and the off-balance sheet operating leasing Loophole is one of the largest.
By the off-balance sheet leasing Loophole operating exploiting, was Starwood around the world almost missed hotels & resorts $1 Billion in debt from its balance sheet in 2010, that the $200 million (20% of the total) of which in the year 2010 has been added.
As shown in the Figure below reported star page result rather strongly of a bankruptcy of Earnings of business in the last financial year differs.
In Additionally to overstating accounting Earnings creates the large amount of hidden debt two red flags for investors:
Free cash flow are about 200 million $ AppearReported are worse than they debt and leverage understated of almost a billion US$
I connect a business always my analysis of the true cash flow with Valuation of stocks. It is possible for a company, terribly unprofitable, but a good share if reflects the future cash flow Expectation are low enough in his Valuation.
Justify at its current price ~$ 57, Starwood would have to their after-tax cash flow (NOPAT) by more than 20% compounded annually for 11 years grow. These are some high Expectations…not, high growth, but also the long Duration of expected growth.
The highest sales growth by Starwood in the last 10 years is reached 17% in 2002. Only in the last 10 years, two-digit Revenue generated company has consecutive years growth (16% and 11% between 2005 and 2006, respectively).
A share price Valuation, which implies 11 consecutive years 20% growth in NOPAT is for the most Companies, especially a hotel in a Global Economy, expected to be too high for the foreseeable future are rather weak.
With no future profit growth, the value of the star page is camp closer to $2 per share. While I don't necessarily expect that Starwood will get any future earnings growth, I believe that no growth important perspective on how much growth in the share price is set at provides and how much risk investors to take, by it holding.
The below Figure suggests that investors in the HOT stock in could be for some Trouble, if the story, which is repeated. The last time Starwood reported Earnings his Earnings defeat by more than 15%, the share overstated $1960s fell over 70% of the Center up to the under $20 per share.
I also expect that Starwood Earnings over statement is again on more Normalem Levels da Companies rules only so much can bow before them breaking. In about the Starwood Understatement will no longer lever, if FASB is expected, change the applicable accounting rules and force companies operating lease liabilities on balance sheet report. This change is expected in the next year or so occur, and it will close the off-balance sheet liabilities of Loophole.
StarWood is a July stocks the most dangerous and calls my "very dangerous" risk/return Rating. There are many Downside risk misleading Earnings given, while it embedded reward is less on the head in view of the already-rich Expectations in the share price. More information on my Rating and a free report on HOT are here.
HOT fits in a deal in which investors make money by buying shares with low Expectations relative to their future Potential, the Profile large stock short or sell.
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I recommend also the following ETFs "dangerous" Rating and exposure, HOT selling. Note is one of the Percentile map where each ETF is under the 375 + US equity ETFs we cover 100% of the highest rating in the corresponds.
PowerShares S & P 500 high beta Portfolio (sphb): 8. PercentileiShares Morningstar mid growth index Fund (JKH) - 33. PercentileVanguard mid cap growth ETF (TSR) - quantile of 34.
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