Sutor Technology Group Ltd. (SUTR)

I just found this one today via a stock screen. Sutor Technology Group Ltd. (SUTR) is trading well below net current asset value per share (NCAVPS).

Share Price: $2.06 / Share

Shares: 40.7 Million

Market Cap: $83.8 Million

Current Assets: $219 Million

Total Liabilities: $121 Million

Net Current Asset Value: $98 Million

Net Current Asset Value Per Share: $2.41 / Share

I'm unclear why SUTR is trading a full 14.5% below its net current asset value. My cursory review of financial statements lead me to believe the company is relatively healthy; Revenues are up year over year, there is a history of positive operating income and net profit, and of course current assets more than cover all liabilities.

On the other hand, earnings per share have declined over the past three years as shares outstanding have risen. But still, there would need to be substantial dilution before the NCAVPS would dip below the current market price of $2.06. We're not talking about a just few million newly issued share here.

On closer inspection, current assets includes approximately $97 million in advances to related party suppliers and just over 50% of revenues come from related parties. However, according to the 10-K:

We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described… were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

Although, that may be a little bit hard to swallow given the fact that gross profit from un-related parties decreased by 14.2% from FYE 2009 to 2010, while over the same period gross profit from related parties increased by 14.3%. On the face of it, that doesn't exactly scream "arms-length."


Anyhow, SUTR is worth some additional study. I'm keeping an eye on it.  September 30, 2010 quarterly results will be released in about a week and hopefully I'll have more time to read through the 10-K more thoroughly soon as well.

Check out the company's SEC filing's here and the Morningstar quote here.