Zuoan Fashion Ltd ATR – (ZA) – The Chinese clothing manufacturer equivalent to Walmart

Zuoan Fashion is the Chinese clothing manufacturer equivalent to Walmart

A P/E of 2.27 with a price of around $3.37 only, this company has posted very impressive sales and growth from the time they went public in 20011. It’s a definite buy for those who don’t mind the risk investing in China. It’s a lot better than investing in Facebook’s overpriced stock at around 94 P/E. If things remain the same, the investor can get his money back in Zuoan Fashion in less than 3 years.

You can see that their return on assets is lesser compared to 2008 but don’t mind it because its misleading. They are actually posting record growth in sales and the reason why the asset figure is bigger than before is because of all the retained earnings from the previous years. It makes the asset figure bigger which creates a lesser ROA.

In reality, the advantage to the stockholder has not been lessened because the money is simply in the company’s register. It would be a good a idea to take it out in the form of dividends though. Nevertheless, the investor should not be turned off by the smaller ROA because it is simply an effect of a bigger capital that needs to be efficiently allocated. In terms of growth, looking at the net income alone should be sufficient.

In support to that, the debt to equity ratio of the company confirms that the lower ROA is not a cause for alarm because the equity amount has simply increased in the form of retained earnings. The debt of the company increased in order to deal with their need for expansion and improvements but even then, the amount of equity compared to the level of debt is getting lower since 2008 as proof that the company is more than capable of their expansion.

Getting from 0.45 to 0.14 is very impressive considering the amount of debt has also increased. The company is still being very conservative when it comes to taking on debt they can afford which is a very good thing for the investor. In addition to their impressive balance sheet, the management has plans for aggressive expansion throughout the country.

Their cash balance right now can obviously afford to do so but even then their debt levels are still very conservative. It’s a sign of prudent and wise management indeed.

If history is to be observed, lower value added goods and services like clothing would do well for countries with cheap labor forces like China. All things equal, the advantage is there for them to take advantage of since there are very few countries that can compete with them effectively in this level.

The pressure on any other foreign clothing manufacturer without the labor pool of China would be at a great disadvantage to Zuoan Fashion indeed.