AMA Group: One small cap about to move up

Sales and profits are up, debt is way down… what's not to like?

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Auto parts and accessories specialist AMA Group (ASX: AMA) announced last month that it has paid off all of its original $30 million debt that remained from 2007-2008 when it went on a buying spree, picking up six companies.

Almost one-third of AMA's sales come from auto protection products like bullbars, similar to ARB (ASX: ARP), but with the past acquisitions it has diversified to cover auto accessories, cables, rebuilt transmissions and panel repair.

Sales have averaged 10% growth annually since 2009 — $44 million to $59 million — and net profit has grown from $4.8 million to $7.6 million. Market capitalisation is $106 million, and its PE ratio is 11.  Since 2010 the share price has jumped from $0.05 to about $0.30c — about six times in three years.

Raising $15 million in issues in January, it has cleared long-term debt, and in March was added to the S&P All Ordinaries Index (ASX: XAO). This makes it easier for institutional investors and funds to purchase stock because they may have restrictions on buying companies not in particular indices. In 2007, institutional investors held 33% of outstanding stock as the stock rose to $1.00 a share, yet most of them sold out when the GFC struck.  Now only about 5% of shares are institutionally owned.

The share price is working its way back up as the company's prospects and the general economy are improving. The auto industry may be doing tough now, but auto owners still want to buy new accessories and need repairs, so AMA stands to benefit and grow.

Foolish takeaway

Peter Lynch described stock picking like turning over rocks to find something good under them. To find one good one, you have to turn over 20. If you want to find two, then you have to turn over 40. He said, "The person that turns over the most rocks wins the game". Small but well-performing companies with low institutional share ownership are a great place to start.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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