Tech investor Chase Coleman (Trades, Portfolio) exited his position in Shanghai-basesd eHi Car Services Ltd. (EHIC, Financial), a car rental company, at a price near a near breakeven price from when he started the position in 2015, he reported Wednesday.
Coleman’s Tiger Global Management hedge fund disclosed a share purchase of eHi Car Services in the second quarter of 2015, when the stock’s price averaged around $13. He then acquired 10,528,160 shares through the first quarter of 2018 at an average share price around $12.37. With an average sell price of $12.95, Coleman ended the investment at a net gain estimated around 5%.
eHi Car Services has seen rapid growth within its business fundamentals, with revenue swelling each year since 2012 and reaching $415.5 million in 2017. Operating margins rose for the past three years to 16.5%, as did return on invested capital, which reached 4.09% in 2017.
The company struggles in its balance sheet. It has a weak financial strength score of 5 out of 10 related to its interest coverage ratio of 1.42, which is lower than 87% of the companies in the global rental and leasing services industry. This is occurring because the eHi has barely enough operating income, at $13.3 million in 2017, to service the interest expense of $8.3 million on its debt. That debt has risen annually since 2012.
eHi also has a high price-earnings ratio of 62.21, with a price-book ratio of 1.41 and price-sales ratio of 4.94.
In the second quarter ended June 30, eHi demonstrated strong growth in its fleet of cars for rent. Its average fleet size soared 21.6% year over year, with fleet utilization rate for car rentals of 72.7%, an increase from 71.1% a year prior.
Revenue generated from the car rentals and car services jumped 27.6%, as the cost to operate the vehicles rose 26.1% while depreciation and labor costs mounted.
Tiger Global Management, a firm Coleman launched in 2001 after leaving Julian Robertson (Trades, Portfolio)’s Tiger Management, focuses on fundamentals of growth companies and has a 10-year time frame for investments. It primarily invests in the global internet, financial technology and consumer sectors and was an early investor in celebrated companies like Facebook (FB, Financial) and Spotify (SPOT, Financial).
This year, Coleman has been on a buying spree, purchasing stakes in Sunrun Inc. (RUN, Financial), Apollo Global (APO, Financial), TransDigm Group Inc. (TDG, Financial) and Bright Scholar Education Holdings Ltd. AD (BEDU, Financial).