Even You Can Benefit from the Ford and Toyota Collaboration!

Who would have thought that the American and Japanese Automakers would work together? Automotive sales and manufacturing is a profession laden with fierce competition. Now that Ford and Toyota are collaborating to develop technologies for trucks and SUVs, many investors are looking to profit from the synergies.

An interesting consideration is to not invest in either of those companies, but to invest in a company like Sorl Auto Parts SORL. Sorl Auto is a small-cap company that designs and manufactures parts involved in brake systems for trucks and busses.

Investors need to be aware that there are no guarantees that Sorl Auto Parts will be a significant auto parts provider for the new agreement. Moreover, potential gains realized from the Ford/Toyota Deal may not be realized for a while on Sorl's balance sheet. There is a chance that Ford and Toyota will want to produce and design proprietary systems rather than licensing them.

To learn more about Sorl Auto's market dynamic, Benzinga reached out to Echo He of the Maxim Group. According to He, "macroeconomic conditions are not in Sorl Auto's favor." With rampant inflation in China, the company may experienced suppressed overall growth. He maintains a 'hold' rating on the company.

From a fundamental perspective, Sorl Auto has experienced fair growth over the last three years. Cash decreased from $10 million to $7 million in 2010, while receivables and inventories greatly increased. This may not be a good sign for the company, as it is not receiving as many cash payments as it used to and is seeing more of its products sitting on its shelves instead of turning over. PP&E assets greatly increased from $36 million to $68 million; this huge increase may have caused the cash pile decreased for the firm. Also, Sorl Auto may be experiencing rapid growth, which would warrant the large increase in capital expenditures.

Sorl's liabilities increased significantly from 2009 to 2010. It incurred $17 million in debt and other current liabilities. Other line items did not waver significantly. Shareholders' equity increased along with assets and liabilities, with retained earnings increasing from $50 million to $70 million. Paid-in capital also increased from $37 million to $42 million.

Sorl Auto's revenues increased from $125 million to $199 million in 2010. Operating expenses like SG&A expenses also increased during this period. Overall, operating income increased by over 50% in 2010. Net income also increased over 50%.

Sorl Auto's cash flows from operations increased along with net income. However, the increase in both inventory and receivables accounts decreased cash flows, and ultimately, CFO increased by 20% in 2010. Sorl's large capital expenditures were reflected in cash flows used in investing activities. Cash flows used grew from $7 million to $42 million in 2010. Lastly, the company issued $16 million in debt and $9 million in common stock, resulting in about $26 million in cash flows from financing activities. The company's total cash decreased primarily as a result of the capital expenditures.

Financial metrics also help to determine Sorl Auto Parts' relative value to comparable companies. In terms of stock price, the company trades at a lower value than competitors. Price/earnings, price/book value, and price/sales are all lower; Sorl trades at 3.2 times earnings will the average competitor trades at 10.3 times earnings. The company's return on equity is at 15.4% while the average competitor's return is about 12.1%.

Growth metrics like revenue growth and EPS growth are positive for Sorl Auto, and its margins are also better than those of its competitors. Considering all the financial metrics, investors may believe Sorl Auto Parts to be undervalued.

Sorl Auto Parts is a small-cap equity that may be interesting for some investors. Its growth may or may not be affected by the Ford/Toyota deal, and risks lie in this particular bet. Considering its fundamental aspects could also help investors determine if it is an appropriate long-term investment.

Sorl Auto Parts has dropped over 60% in 2011 and is currently trading at around $3.30.