There is no doubt that the share price of China Automotive Systems Inc. (NASDAQ:CAAS) has been battered and bruised over the past couple of years. It has gone from $24/share in April 2010 to as low as $3.23 less than 3 months ago. Sure there were reasons for its demise, from the "reverse merger frauds" associated with other companies, to the necessary revising of their financials which led to the threat of lawsuits, and to simply having the word China in their corporate name. Investors were afraid and chose to sell and stay away from it. But by now wouldn't it be safe to assume that the fear is overrated, even uncalled for?
Yes, CAAS entered the U.S. market via a reverse merger, but why should they automatically be associated with the fraudulent companies that went the same route? They've been around for 9 years and nothing fraudulent has been found on them. The big 4 accounting firms were disassociating themselves from many of these reverse merger companies, yet in CAAS's case PriceWaterhouseCooper came on board to audit their financials, and sign off that everything was straight - which they did. Why would a firm as powerful as PWC associate themselves with a fraudulent company?
As for the lawsuits, I personally haven't heard anything from them. The threat of the lawsuit filings came out 3 separate times last year, word for word, with just the deadline being changed. I find those lawsuit threats extremely questionable in that these different law firms released their class action requests on the exact same day - as though it was just another fear-based shorting attempt. But it's obvious that the market is on to that now, seeing as the last deadline was for Dec. 2011, and since then the stock price has gone up more than 100%. If there really was a fear of these lawsuits then why would the price rise so dramatically so fast?
With regards to CAAS's future, in the past 6 months they've formed a joint venture with two Brazilian automotive companies, as well as a different joint venture with another Chinese company in Chongqing city. On top of that the Chinese government has agreed to only buy Chinese brand vehicles this year, thus ensuring a guaranteed increase in revenue for CAAS.
Furthermore management has been buying shares on the open market. Is it not a good sign when insiders are actually buying shares? In the past 6 months they've bought more than 44 thousand shares and not sold a single share.
The bottom line is that CAAS has been unjustly suppressed for too long. How can their market cap be half of their FY2011 revenue, and equal to their total equity? Three months ago, it was equal to one quarter of their revenue. That just doesn't make any sense. I truly believe that this 100% surge in the last three months is just the start of good things to come for CAAS and investors.
Disclosure: I am long CAAS.