Why China Automotive Shares Tumbled

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of China Automotive Systems (NASDAQ: CAAS  ) were slipping today, down as much as 25% after a disappointing earnings report.

So what: Sales for the automotive supplier increased 21.8% to $97.9 million, but that was well short of expectations at $102.7 million. Earnings per share, meanwhile, came in at $0.18, matching expectations. CEO Qizhou Wu noted that the company grew its market share during the quarter as vehicle sales in China only increased by 12.3%. Despite the growth in revenue, earnings per share actually fell from $0.21 a year ago due to a lower gross margin on a change in the product mix, and increases in selling and R&D expenses.

Now what: Even with the poor sales growth and the drop in the share price, management raised its full-year revenue growth guidance to 15%, or $387 million, though that is below analyst estimates of $407 million. Still, China Automotive's shares have been all over the place in the past year, and with recent economic indicators from China looking up, I wouldn't count out the auto supplier despite the underwhelming sales growth.  A P/E of 8.4 doesn't hurt either; profits should begin to grow again as long as sales are increasing.

China still remains the world's largest auto market, and it's growing fast. Even though China Automotive may have tripped up, there are still plenty of smart picks that will give you exposure to this trend. Our analysts have identified two automakers that are poised to surge along with China's middle class. If you want to be among the investors who get rich from this growing phenomenon, then just click here now for more information.



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10/1/2014 3:59 PM
CAAS $8.98 Down -0.20 -2.18%
China Automotive S… CAPS Rating: **

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