Net Net SORL Is Cheap

I've made a couple posts on SORL Auto Parts over the past couple of years. Nothing has changed much with the companies long-term fundamentals. The only thing that has changed significantly is the stock price. It's net current asset value has actually increased from 2013 when it was $124 million and 2014's of $129 million. Right now $141.7 is the net current asset value of SORL. It still sells brakes and auto parts in China. It's a major player in commercial brakes. What I didn't realize about SORL before is how diversified it is internationally. 73% of its business is in China but 27% is international in 104 countries including the United States, UAE and Europe. I'm always skeptical of Chinese companies so I looked around to see if I could find info on where they are sold in the US. I didn't see anything which likely is because they are sold directly wholesale to big companies with commercial trucks. I did find some parts on Alibaba.

The stock is cheaper relative to NCAV than in 2013 with the market cap back at $50 million, NCAV at $141 million and the stock at 2.72. It is priced at 36% of net current asset value. I do believe this would even meet Benjamin Graham's margin of safety requirement! Sales have grown steadily every year since atleast as far back as 2012. Yet the current price to sales multiple is .23. Below 1 is low for about any decent company. The company is profitable yet the PE ratio is 3. On the balance sheet the current ratio is 3.6. Healthy. A cool $18 million in free cash flow in 2014.

I'm very bullish on China over the long-term and I would expect this correction currently going on in the overall China market to end sooner than later. The current PE multiple on the stocks in FXI is around 10-11. If you can get major Chinese companies for single digit PE's that is cheap. Not to mention some dividend yield too. SORL has a lot of support until 2.50. I think the fundamentals make it a compelling buy here.

Net Net SORL

I recently looked through a lot of NCAV net-net's. These are stocks with market caps below net current assets. The most compelling recent net-net I noticed is a company called SORL Auto Parts.

SORL Auto Parts (SORL) is a Chinese company that develops, manufactures and distributes automotive brake systems and other key safety related auto parts to automotive original equipment manufacturers, and the related aftermarket both in China and aboard. The Company’s products are used in different types of commercial vehicles, such as trucks and buses. SORL is trading below net current asset value and is profitable. It even has earnings growth.

Crunching numbers straight from their annual 10-K filing the market cap is $51 million and net current assets are 124 million. At the current stock price of 2.65 it is trading 41% below net current asset value. Cash has also been stable over the past couple years which is good. Moving from the balance sheet to the income statement we find earnings and a current PE ratio of 4. The PEG ratio (price to estimated earnings growth) is incredibly nice at .89 over the next 5 years. In 2012 the company had free cash flow of around 29 million for the year.

The stock had a big run from 1.80 a share in Sept of last year all the way to 4.00 in February of this year.

Two Net Current Asset Value Stocks

Lots of different things can become of net current asset value stocks. These are the truly deep value stocks that only a true value investor can love. Why? Because they aren't glamorous. They usually are not as sexy as say an Apple (AAPL) or GoPro (GPRO). Net Net's often don't even turn any profit. They are sometimes entering their journey into stock market obscurity.

However, sometimes they can be tremendous opportunities. Once in awhile a net net will be a former profitable growing company that just hit a rough patch. I find that many times these will have a "brand moat" like a major retailer. This can help the turnaround. Sometimes these good or great companies that turnaround and come out of net net territory can be big gainers and even multi-baggers. Yes, multi-baggers. Sometimes we value investors look for companies we that we know probably will never be good again. Companies that are just so cheap like trading below net cash that there might be a catalyst to bring out the value of the assets. Special situations and going private transactions can unlock that deep value. Or the company just recovers into profitability. One such company we will look at today that could possibly do so.

Delcath Systems (DCTH)
This troubled stock DCTH is seeing its stock price hammered lately. This is a struggling company. The reason I am interested in this one is the cash on the balance sheet. The cash has been stable. Let us crunch some numbers on this one. There is 25.1 million in net tangible assets or 2.64 per share, 22.7 million in net current asset value or 2.40 a share and 21 million in net cash which is 2.22 per share. The stock last traded at 1.77 a share. This is 20% below net cash. Technically this stock is taking out all kinds of support and I see it continuing to decline for awhile. Maybe we can see it around 40% below cash. That looks pretty good as cash stays stable.

SORL Auto Parts (SORL)
This is one of those that almost doesn't make any sense. This company has had sales and earnings growth and yet has been a net current asset stock. The last time I posted on SORL on the blog was last year. The stock ran up a lot and has started coming down again. Other than that not much has changed with this company. I can only guess the low price pegged on it is because it is a Chinese company. It's a small company too which is fine with me. The price to earnings growth rate (PEG) is nice here again at around 1.00. Last quarters earnings got shaved a little from forecasts. There is 129 million in net current asset value or 6.65 a share. The stock last traded at 3.48 per share or about half of its net current asset value. I think once SORL is below 3.00 a share it is in the buy zone. If you've read the blog over the past couple months or so you probably pinned me as just a technical analysis chart guy. Nope. I was a value investor before I learned how to read a chart. Why do I use both approaches? Simple. I like every edge I can get. I like to buy stocks that go up and short stocks that go down.

MSN and JVA Revisited

I quickly went through a net current asset stock screen. There is not much out there to no surprise. There are a few though that have potential. I've been blogging on them some. The SORL, the SPU. I've blogged about these two deep value stocks a lot in the past. First up is Emerson Radio (MSN)and it has always been around net current asset value and profitable. I took a look at Emerson again and this is what I see currently. I see cash on the balance sheet stable the past year. It is actually marginally up from last year. Cash is 28.1 million. There is zero long-term debt. Total liabilities are just 3.9 million. So net cash is roughly $24 million. The market capitalization of the company is $27 million. So it is right around net cash with the stock at 1.01 per share. I don't think it is any coincidence the stock has bottomed out and found support around 1.00 the past couple years. You can see that here in this chart below.

They squeaked out a small profit last quarter though revenue doesn't look good. Who knows what is to come. I am going to put a limit order to buy some shares around 1.11 or lower. If the price drops below .90 the thesis doesn't work anymore and I'll take the loss.

Coffee Holding JVA is very close to being a net current asset stock. It's been a net tangible asset value stock for awhile. The price has just been in free fall this year. It appears technically it could be bottoming. I hope it keeps dropping though. I see this as the best net current asset value if we get there. It almost got there in early October this year in the 3.80s. That was the bottom though and it got picked up on strong buy volume. This one really just needs an activist investor I think. Something like that. I don't know a whole lot about this company but wholesale coffee can be consistently profitable.