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Novice investor looking to learn more about effective trading strategies and eliminate all the mistakes made throughout the years.
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  • Stock Analysis: China Zenix Auto (ZX) 0 comments
    May 7, 2013 9:30 AM | about stocks: ZX

    China Zenix Auto (NYSE:<a href='http://seekingalpha.com/symbol/ZX' title='China Zenix Auto International'>ZX</a>)For whatever reason, I like exotic stocks. It may be why I'm not as rich as Warren Buffet. Or maybe it's because I don't have multiple billion to play with like Dub B.

    Regardless, my psyche gets psyched up for stocks of companies I never heard of. And if those stocks are foreign stocks, I get a little extra kick out of pouring money into them. The cherry on top is if the stock is dirt cheap per share relative to the Googles and Apples.

    But I'm getting a bit smarter with it. Instead of choosing stocks because I can get a ton of shares for nothing, I've been looking at their fundamentals. My watchlist does currently have companies we've heard of such as Goodyear Tire (GT), AT&T (T) and Corning (GLW), but it also has a few lesser known companies, at least companies I just learned about.

    One of them is started to separate from the pack, and I'm going to take a deeper look into its fundamentals.

    China Zenix Auto International Ltd. (ZX) is an auto components company based in Fujian Province, China. It specializes in the design, development, manufacture and sales of high-quality commercial vehicle wheels used by most types of commercial vehicles in China. With more than 230 series of tubed, tubeless and off-road steel wheels, it is China's largest commercial vehicle wheel manufacturer in both the aftermarket and OEM market in sales volume.

    Most important, to me, it's share price closed today at $2.98. But using the little knowledge I've learned in the past few days, China Zenix has caught my eye for more practical reasons.

    For starters Yahoo! Finance has it listed with a 0.828 beta which makes me feel safe. Traditionally I've been drawn to betas of 2.0+ which should come with a bottle of Pepto-Bismo. I've become a bit more conservative, aiming for 1.0, anything lower making me feel a little more comfortable when I go to bed.

    Its mean recommendation of 2.0 also is convincing, though I have no idea how much stock (excuse the pun) to put into those numbers. For the uninitiated, a mean recommendation of 1.0 is a strong buy; a mean recommendation of 5.0 is a strong sell. A 2.0 is closer to buy, but again, those change faster than you can blog about them.

    So digging deeper, I checked out China Zenix's P/E Ratio, and though not impressed with its 2.24x when the industry average is 14.0x, its operating gross margin of 12.80% versus the industry average of 2.10% and its gross profit margin of 26.03% versus the industry average of 17.47% make me feel a little better. Chinz Zenix's net profit margin (ttm) is 10.7%, easily destroying the industry average of 1.19%. In fact, China Zenix is one of the more profitable companies in the auto components industry.

    China Zenix has a debt to total capital ratio of 25.29% which is in-line with the industry. Taking in consideration its high profit numbers, there's no concern of China Zenix running into problems paying back debt. Its quick ratio is 0.95x and its current ratio is 1.27, both I can live with.

    But back to profits. China Zenix's return on equity is 20.96%, about six points below the industry average; its return on assets is 10.77% and its return on investments is 19.88%, both convincingly more than the industry average. These are clear signs that China Zenix is among its industry's best in managing their resources.

    Its PEG ratio (5 yr expected) is an attractive 0.15. Its annual dividend yield is 2.00% (eh). Its EPS (ttm) is 1.34 (eh) with operating cash flow per share of 1.77.

    From my novice perspective, looks like a winner to me. It may not be as glamorous as other stocks, its fundamentals may have some warts on them, but it has a lot of upside that I can see.

    If course, any veteran traders out there that can translate all these numbers into a buy or sell, please do share your opinions.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ZX over the next 72 hours.

    Additional disclosure: I don't have any current positions with ZX but plan to in the next week or two. The fundamental numbers listed above are from various sources, primarily Yahoo! Finance and a couple of the trading platforms I use. I don't encourage - more like highly discourage - anyone from making a buy/sell decision based on only what I write; do your research.

    Stocks: ZX
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