Xinyuan Real Estate: The Path Is Becoming Clearer

Feb. 19, 2019 12:00 PM ETXinyuan Real Estate Co., Ltd. (XIN)25 Comments
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  • Xinyuan's stock has performed well so far in 2019, but I still believe that XIN shares have room to run.
  • Xinyuan reported strong Q4 2018 results that were well above the numbers that were reported in the year-ago quarter.
  • I am long Xinyuan, and I plan to get longer in the near future.
  • This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Get started today »

Xinyuan Real Estate (NYSE:XIN) has been one of the best-performing stocks in the R.I.P. portfolio. The stock is up over 28% this year, and it is outperforming the S&P 500 (SPY) by 17 percentage points.

ChartData by YCharts

While there is definitely risk to the story, I believe that Xinyuan has the potential to be a great long-term investment at today's price. Moreover, it helps the bull case that the company's most recent operating results showed that Xinyuan is well-positioned for 2019.

The Latest, The Story Remains Intact

On February 15, 2019, Xinyuan reported adjusted Q4 2018 EPS of $1.15 on revenue of $1.08B, which compares favorably to the adjusted EPS of US$0.50 on revenue of US$725.66M reported in same period of the prior year.

Highlights from the quarter:

  • Contract sales decreased by 12.1% (to US$724.0M) when compared to Q4 2017
  • Total revenue increased by 49.1% YoY (to US$1,081.8M) and gross profit came in at US$310.2M (a YoY increase of 72%)
  • Net income increased by 194.4% (to US$104.2M) when compared to Q4 2017

These results were even more impressive after considering the fact that Xinyuan is still facing significant headwinds in its home country (i.e., Chinese government restriction policies). The contract sales numbers are not great but, when taking a step back, they are not real concern [yet] either.

Additionally, anyone that follows me here on Seeking Alpha knows that I believe that Xinyuan's stretched balance sheet is a major risk factor. While the Q4 2018 balance sheet figures were nothing to brag about, I do believe that management is slowly putting this company in a more-manageable financial position.

(US$ - in thousands) 31-Dec-18 31-Dec-17 $ Chg % Chg
Cash & cash equivalents 772,367 894,551 (122,184) -14%
Real estate properties under development 3,804,555 1,996,001 1,808,554 91%

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long XIN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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