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The Consumer Goods sector is reported by YCharts to have an average 44.27% EPS growth. While technology is in the triple digits, what really caught my eye was the high year over year quarterly earnings growth in the Auto Parts industry. Would we find a few bargains here?

Scanning Through the Auto Parts Aisle
Some people track PEG ratios. Investor’s Business Daily followers are eying FDML, OTCPK:WATG, SORL, XIDE, and AXL based on PEG ratios from 0.34 to 0.55. However, I wanted to take a different approach and analyze a few fundamentals tracked over the past decade. This is what I found:

LEA – A seemingly deep value pick. They really beat estimates on this quarter’s earnings (see results here), but are forecasting a sizable drop in revenue and earnings for the 2011 year. The trailing 3.6 P/E ratio is about to settle at a more reasonable level when looking to a forward P/E of 10.7. The price to sales is quite low at 0.47. Revenues are slumping, and need to increase for a sustainable earnings increase. Even though they have increased cash on hand, reduced their long term debt, and are having triple digit earnings growth rates, this just may not be the time to buy until revenues start to trend upwards a little stronger.

ALV – This one, I am a bit more bullish on. This maker of seat-belts to airbags is expecting double-digit revenue growth for 2011, despite a slowdown in a couple of countries. Price to sales is still quite low around 1, and they have a forward dividend yield of 2.1%. From 2009 to 2010, yields took a mighty plunge from roughly 7.5% to nothing, and back up to what we have today. This could be a good future income investing stock if they can steadily increase yields with share prices. They have been paying down on their long term debt, increasing their return on equity the last couple of years, and having a general increase in free cash flow when looking back over the past 10 years. With very low payout ratios of only 6%, this is one to watch right now.

DORM – Dorman Products is a smaller operation with a market cap of less than 600 million. Earnings and revenue growth are good year over year, but this is often expected coming out of the recession where automakers were hit hard. The P/E ratios and prices to sales ratios are okay, but slightly above industry average. Share prices fell from $46 to $33 over the past couple of months. What makes this a good small cap play? The long term trend says a lot for this company.

  • Sustained and accelerating revenue growth over past 10 years
  • 5 year EPS growth 27.5% but this year expected 65.3%
  • Cash on hand quadrupled over past year and a half
  • Return on equity at decade highs with steep incline since 2008
  • Long-term debt paid down to almost nil
  • Liabilities steadily decreasing over past 10 years while shareholder equity constantly climbs

It’d be nice to see a little more free cash flow though.

OTCPK:WATG – Less than 300 million cap and very low valuations. Forward P/E is less than 6, PEG is 0.41, and analysts generally feel this is a buy with a mean price target of $13, as opposed to the $7.30 it's trading at right now. The short ratio just under 15% could give this a big pop if revenue and earnings continue to rise.

A couple of other good EPS growth rate companies leading in profit margins are GNTX, ARGN, and CLC. But do your due diligence since a quick look at CLC, while still having an OK return on equity, has seen a steady drop over the past 10 years in ROE and that is very disconcerting.

Source: Four Potential Auto Parts Picks