Most bikers love a good downhill ride, but for investors, they're not nearly so much fun. One company that has led its investors down a steep slope is DuraAutomotive Systems (NASDAQ:DRRA). Dura manufactures driver-control systems and other automotive systems for many different car manufacturers, including Ford (NYSE:F), General Motors (NYSE:GM), and DaimlerChrysler (NYSE:DCX). Take a look here to see the beating that investors have taken in this stock over the last year and a half or so.
Dura has been struggling with increasing steel costs and declining production volumes at many of the car manufacturers. As a result, sales during the recently completed second quarter fell to $624 million compared with $659 million a year ago. Net income was an anemic $3 million, compared with an also weak $3.3 million last year. In addition to minuscule earnings, free cash flow has been declining during the last three years.
Unfortunately, this company's balance sheet is not strong enough to weather extended bad times. Dura has $2.1 billion in assets, but closer inspection shows that $866 million of the assets are intangibles. This means that there is $1.2 billion in tangible assets, which is less than the $1.8 billion in liabilities.
Also inspiring little confidence is the statement in the 2003 10-K that Dura's top priority is to reduce debt. In December 2003, total debt stood at $1.16 billion. So how much lower is it now? Well, it has actually risen slightly to almost $1.19 billion -- so much for meeting the most important goal. Furthermore, investors have to evaluate the company's ability to meet a substantial interest expense each quarter, although Dura has taken steps to improve its liquidity by arranging new credit lines.
Despite all the negatives, there are some positives. Compared with Visteon (NYSE:VC), which does about 70% of its business with Ford, Dura's revenues are less concentrated. Though Ford is also its largest customer, it was responsible for only about 19% of Dura's 2004 revenue.
Another positive is the valuation, at least in terms of a very low price-to-sales ratio of less than 0.04. This sounds absurdly low (even GM with all its problems has a price-to-sales ratio that is about three times higher), but a low value is probably deserved due to the problems of the U.S. automakers, the high debt burden, negative tangible shareholder equity, rising raw materials costs, and the limited ability to pass cost increases on to its customers. If you own these shares, you have to accept that the stock price may fall to zero. This possibility makes it unlikely that Dura will be recommended by bargain hunter Philip Durell and his Inside Value newsletter service any time soon.
Fool contributor Dan Bloom owns shares of DaimlerChrysler and Ford.
