JINGZHOU CITY, China (
ascent in recent years has been nothing short of amazing. Rampant growth and industrialization has lead to a boom in demand for the luxuries enjoyed by the rest of the world, including cars.
By some estimates, 1,500 cars are added to Beijing's congested streets each day.
China Automotive Systems
is boosting profits faster than
China Automotive supplies parts to several carmakers in
, the world's fastest-growing economy. While the company has few clients outside of China, the industry there is expected to expand faster than those in developed countries by several percentage points. While struggling American companies fight over small slices of market share, the Chinese automotive industry is new enough to fuel explosive growth.
China Automotive shares have climbed more than fivefold during the past year as the company posted a return on equity of 20%. With a PEG ratio of 0.8, the stock is still cheap despite its rapid gain.
A stock with growth prospects this strong has the potential to be volatile. Its beta value of 2.5 suggests its stock will swing more widely than the broader market. Its small market cap of $550 million and frequent trading activity means that investors should brace for rapid price fluctuations.
The American economy may be primed for a knockout 2010, but China's expansion will still outpace it because it has more room to move. Developed markets offer fewer growth opportunities. China's car industry will be hot for years to come as the new middle class equips itself with the same luxuries that Americans have enjoyed for years. Chinese Automotive Systems will be one of the beneficiaries. We rate the company "buy."
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.