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Is Eagle Hospitality Trust worth it?

Thursday, November 7, 2019

On 24 October, a reader left a comment here in my blog:


"The yield is almost 10% now.

"When trading halt is lifted, price is likely to crash and yield will shoot up above 10%.

"Do you think the risk is worth taking ? Thanks."

In reply, I said that the risk looked pretty significant.

I felt that I shouldn't take on too much risk in my retirement.

Basically, that meant I wasn't going to invest in Eagle Hospitality Trust.

The following day, on 25 October, Eagle Hospitality Trust's unit price crashed from 64.5 cents to 54.5 cents.

Of course, it did not stop there as it further plunged spectacularly to 44 cents on 5 November.

People say that IPO stands for "it's probably overpriced".

Well, it seems to be the case here.

Eagle Hospitality Trust's IPO earlier this year was priced at 78 cents per unit.

It is certainly not an exaggeration to say that investors who got in during IPO have suffered massive wealth destruction.

What to do?

For those already vested, should they cut loss or buy more?

Well, when even substantial shareholders cut their losses, it is rather ominous.

In fact, it is because of substantial shareholders selling a substantial portion of their stakes that created massive selling pressure leading to the catastrophic crash in Eagle Hospitality Trust's unit price.

When elephants stampede, it is the grass that suffers.

As retail investors, keeping an eye on what insiders do is usually a very good idea.

When insiders buy, it is usually because they think they are getting a good deal.

When insiders sell, it might not be because they think they got a bad deal.

To be fair, there could be many rather innocent reasons why they sell.

However, I would say that this is probably true when the stock is doing relatively well.

Insiders might want to take some profit off the table.

After all, it is never wrong to take profit, as the saying goes.

When insiders sell a significant percentage of their investments and take big losses in the process, however, the reason for selling could be less benign.

Alarm bells should go off when more than one insider take big losses selling down their investments.

This is the case with Eagle Hospitality Trust.

Insiders probably know something retail investors or outsiders don't.

If Eagle Hospitality Trust is a good investment for income, after a huge decline in unit price, insiders should be buying more.

Even if they don't buy more, they should be holding on to their investments.

They should not be selling.

This kind of selling by insiders is ominous and it is enough to stop me from investing in Eagle Hospitality Trust even now.

Not investing?

What about doing a bit of speculating instead?

This is when we buy and hope that the unit price will go up in the (not too distant) future.

Well, the selling pressure has weakened but it has not disappeared.

The slight recovery in Eagle Hospitality Trust's unit price now is due to reduced selling pressure and not due to strong buying pressure.

This is quite obvious when we look at the trade summary.

There is much more selling down going on than there is buying up of units.

After so much damage, unless there is very strong and sustained buying pressure, it is likely that Eagle Hospitality Trust's unit price will stay depressed for some time to come.

If there is strong and sustained buying pressure, we could see a rebound that moves the unit price to test resistance provided by the declining 20 days moving average.

Lacking this, the unit price could move sideways and the declining 20 days moving average will catch up in time which could create more downward pressure then.

The RSI, a momentum oscillator, says Eagle Hospitality Trust is oversold but there is nothing to say that it won't stay oversold for an extended period of time.

The MACD, another momentum oscillator, is still declining in negative territory and from the looks of it, it will take a rather long time before this is repaired.

A trade is usually safer when we see a positive divergence and I do not see one now.


"Never risk what we have and need for what we don't have and don't need." - Warren Buffett

Unless we have deep pockets like the substantial shareholders, whether we are investors or speculators, it might better to stay away from Eagle Hospitality Trust even now.

It could be that I am missing out on a fantastic deal but when in doubt, I should stay out.

I might be tempted but I don't need this.

Peace of mind is priceless.

You might also be interested in this blog:
Trump won the election and I lost my life savings.


Eric said...

Hi AK,

Sorry to interrupt this post for EHT. Last evening, QAF had requested for trading halt. What you think they will announce? Selling off of pork business or take private?

AK71 said...

Hi Eric,

Your guess is as good as mine.

I blur. ;p

Simple Investor said...

Hi AK,
Thanks for your EHT write up. I was almost tempted to punt.
I agree peace of mind is far better than fear of missing out,
Great Sharing!

streamyx88 said...

thanks for sharing your view on EHT

streamyx88 said...

thanks for sharing your view on EHT

AK71 said...

Hi Simple Investor,

This is not an analysis of EHT's business, of course.

We can find plenty of that by research houses and also by other bloggers.

I am just sharing my feelings towards EHT based on substantial shareholders' behavior.

I believe their behavior tells us something about EHT.

At least, it tells us what they feel about EHT as an investment for income.

The unit price will have to be much lower than what it is now for me to invest in EHT in order to compensate for the cloud of uncertainty.

Of course, if the cloud is dispersed convincingly, it is a different story.

The TA in the blog provides another possibility for going long.

A positive divergence would signal a change in sentiments and a trend reversal might follow.

AK71 said...

Hi streamyx88,

Yes, it is just my view. :)

Not an analysis. ;)

Yu said...

hi ak,
I'm a beginner to stock market but i made some profit when i heard u talking to yourself.:D
first stock was APPT and second stock is accordia golf trust...
and here im trying to keep my life simple like what u used to do and become a retiree at the age of 40 too :D
Please continue talking to yourself :D
oh btw, is your view on accordia remains unchg?
if yes then i will keep it xD

AK71 said...

Hi Yu,

Retire at 40?

I am a failure. :_(

To retire by age 45, start with a plan.

I was 5 years late. Sob.

Accordia Golf Trust?

You might want to read these blogs:

1. Largest investments updated (4Q 2019).
2. 3Q 2019 passive income: Numbers.

Doesn't matter what I think and do, of course.

You decide. :)

Unknown said...

Substantial shareholders stop selling at 55 cent, now 45.5 cent. Market overreacts?

AK71 said...

Hi Unknown,

You might want to see my latest blog on substantial shareholders selling at 44.5 cents a unit.

Eagle Hospitality Trust: Financial engineering and selling at 44.5 cents a unit.

I don't know what Mr. Market will do next, of course.

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