Tuesday, May 11, 2010

Quick Analysis: Magna International (MGA)

MGA: Magna International

Automotive supplier

Recent Range: $25/share – $95/share (Current Price: 71.92, as of close of 5/11/10)

Price/Sales (P/S) = 0.42 (0.84, Industry)
Price/Book (P/B) = 1.06 (1.86)
Gross Margin = 11.2% (14.2%)
Pre-Tax Margin = 0.0% (1.0%)
Debt/Equity Ratio = 0.02 (0.66)
Current Ratio = 1.5 (1.6)
Return on Equity = -1.0% (1.6%)
Return on Assets = -0.6% (0.9%)

Analysis: OK.

The financial numbers are not great, and today’s price is much closer to its 3-year high than its low. Despite that, you know that the auto industry is in the process of rebounding. Plus, this company is well managed. They had a big cash pile, but it seems like they wisely bought assets with it while they were cheap.

You have to like that they have plenty of cash, even though they have next to no debt.

You have to worry about them not showing a profit, though. The auto industry is a tough place to make a profit and be pricewise competitive. So the business model is largely dependent upon receiving orders for high volumes, which is not always the strongest business model.

This company has its companies compete against each other for quotes. This makes them run more lean, but it also discourages internal cooperation. It also tends to have a negative effect on employee morale.

It pays a dividend, but it’s too low to factor into my decision making (about 1%).

My prediction is the stock price will be higher two (2) years from now than it is today, but there are some fundamentally wrong things with this. If you do not have a better investment in mind, this might be a good intermediate term investment, but I’d be careful and keep a watchful eye on this one longer than 2 years or so.

For me, I’m looking at other investments. Largely, it seems like this might be too pricey for what you are getting.

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