An Exciting Time for Small Stocks

Earnings season is always an exciting time for me because you get to review a company’s latest numbers and their most up-to-date forecast for the future. Nowadays, a company’s forecast is almost more important to the stock market than their current numbers.

One small company that in my mind continues to generate excellent growth is Wonder Auto Technology, Inc. (NASDAQ/WATG). I’ve written about this company many times in this column and the stock was hit hard by the most recent correction in the broader market.

This company, based in Jinzhou City, Liaoning, China, operates through a number of subsidiaries that design and manufacture automotive electrical parts and suspension components. In 2006, the company ranked second in sales of automotive alternators and starters in the Chinese market.

The company currently sells five different series and over 150 models of alternators, 70 models of starters and various suspension-related parts, supplying a number of auto makers, engine producers and auto parts suppliers in China and abroad. Some of the company’s customers include: Beijing Hyundai Motor Company; Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd.; Harbin Dongan Automotive Engine Manufacturing Co., Ltd.; and Tianjin FAW Xiali Automotive Co., Ltd.

One of the reasons why this company is so successful in an industry that’s under duress is that automobile customers are demanding smaller vehicles with small engines. Wonder Auto Technology made a business decision to focus on auto parts for smaller vehicles and this strategy is paying off right now.

According to the company, its third-quarter revenues grew to just over a record thirty-nine million dollars, representing a 44% increase over comparable third-quarter revenues of just over twenty-seven million dollars last year. Wonder Auto cited that its record growth was due to increased demand for small to mid displacement alternators and starters. Export sales grew by a substantial 138% to $6.2 million, as compared to export sales in the third quarter of 2007.

Net income grew a substantial 73% to a quarterly record of $6.4 million, up from net income of $3.7 million generated in the same quarter of 2007.

Total sales for all of 2008 are expected to be approximately one hundred and fifty million dollars. The company’s current estimate for total 2009 revenues is for between two hundred and twenty million dollars and two hundred and thirty million dollars, which is an increase from previous guidance.

So, it is an exciting time for a lot of small companies in the marketplace. The broader stock market still has to find its footing over the coming months, but if there’s one thing I’m sure of, it’s that the stock market will lead us out of the recession.