IBD Sector Leader Breaks Out On First China Policy Shift In 14 Years

If you've been paying attention to the markets, you've likely noticed the recent surge in Chinese stocks. The catalyst? A significant policy shift by China's Politburo, marking the first instance of easier monetary policy in 14 years. Among the stocks leading the charge is Atour Lifestyle Holdings (ATAT), an IBD sector leader in the lodging industry group and a member of the IBD 50 list. Let's dive into the reasons behind Atour's impressive performance and why investors should take notice.

Atour Lifestyle, which operates over 1,500 hotels, including some in the luxury category, has seen its shares soar since beginning trading on the Nasdaq on Nov. 11, 2022. The stock has gained about 166% since then and is up 68% year-to-date. This strong performance can be attributed to several factors, including the company's impressive financial growth and the positive impact of China's policy shifts.

In the third quarter of 2023, Atour's sales grew by 53% to $270.5 million, while earnings per share (EPS) rose by 47% from the prior year. The company expects sales to increase by 50% for the full year compared to 2023. Analysts polled by FactSet expect profit to rise by 34% to $1.25 a share in 2024 and by a further 29% to $1.61 a share in 2025. These impressive growth figures are supported by Atour's high ratings, with an ideal EPS Rating of 99 and an outstanding Composite Rating of 98.

Atour's Relative Strength Rating has also improved significantly, from 41 six months ago to 94. This indicates that the stock has outperformed the broader market and its peers in the lodging industry group. The company's relative strength line is trending higher and near new highs, further validating its strong performance.

The recent policy shifts in China have played a significant role in Atour's stock performance. The PBoC's liquidity facilities for Non-Bank Financial Institutions (NBFIs) to buy equities and for listed companies to conduct buybacks, along with the Politburo's stance on monetary policy advocating for 'impactful' rate cuts, have boosted market sentiment and driven stock prices higher, including Atour's. Additionally, the Politburo's shifted stance on housing, including the lowering of the national minimum down payment ratio for second home buyers, has positively impacted the real estate sector and related industries like hospitality, benefiting Atour.

Atour's expansion into luxury hotels has also contributed to its strong EPS growth. The company's acquisition of a majority stake in a luxury hotel operator in 2021 added high-end properties to its portfolio and helped it enter the luxury segment. This strategic move has allowed Atour to increase its market share and diversify its offerings, attracting investors and contributing to its impressive financial performance.

Moreover, Atour's dividend policy has contributed to its appeal to mutual funds and other investors. The company has an annual dividend policy of paying out no less than 50% of the prior year's net income for the current year and the next two years. This consistent and predictable dividend policy provides investors with a stable income stream, which is attractive to mutual funds and other long-term investors. The company's strong financial performance has allowed it to maintain and even increase its dividend payouts, further enhancing its appeal to investors.

In conclusion, Atour Lifestyle Holdings' impressive stock performance can be attributed to its strong financial growth, strategic acquisitions, and the positive impact of China's policy shifts. The company's high ratings, improved relative strength, and dividend policy have contributed to its appeal to investors. As China continues to implement easier monetary policy and other supportive measures, Atour is well-positioned to continue its impressive run and outperform the broader market and its peers. Investors should take note of this IBD sector leader and consider adding it to their watchlist or portfolio.