Solomon's Select, by Mark Robertson, Managing Partner
Posted on August 1st, 2013
Long-time community favorite GNTX makes cool rear-view mirrors with auto-dimming and things like embedded displays for rear-view cameras.
Gentex (GNTX): Business Model Analysis. 9-10% top line growth seems to be in order for Gentex. We also note the impact of the Great Recession (2007-2008). Next time one of your friends questions whether stock prices following earnings — show them this chart and ask them to explain. Wait for an answer.
Gentex (GNTX): Return Forecast Chronicle & Technicals. A quick look at 5-year trailing return forecasts shows that the current forecast has been higher but is still near relatively high levels. Still not overbought (RSI = 57.6) and exhibiting a healthy dose of momentum (9-month rate of price change is 32.7%) The recessionary body blow is clear in the middle of the price chart. When people stop buying cars, it hurts.
Long-time community favorite Gentex (GNTX) makes cool rear-view mirrors with auto-dimming and things like embedded displays for rear-view cameras. They also make things like SmartBeam headlights and windows for the latest crop of Boeing aircraft. It’s all about glass and in this case, a glass half-full.
Gentex is something of a company without an industry. Their overwhelmingly dominant position in products offered leaves little room for competitors. World class manufacturing and innovation have been hallmarks since Chairman & CEO Fred Bauer started this quest back in the 1970s.
The Manifest Investing sales growth forecast for GNTX is 9.0%. We’re using 15.6% for the projected net margin. Value Line has a 3-5 year projected net margin of 15.6%.
The median P/E for the period 2005-2012 is 24.1×. We’re using 21x for the projected average P/E.
At the time of selection (7/31/2013), the stock price is $22.56, the projected annual return is 13%. The quality RANKING is 91 (Excellent) and the financial strength rating is 84 (A).
The Value Line low total return forecast for GNTX is approximately 9%. S&P is a little less sanguine, calling the stock price a “hold” for now. Morningstar has GNTX with a fair value of $27 for a price-to-fair value ratio of 84%.
Concerns include the retirement of Bauer, an acquisition-in-progress (with some debt) and challenges where automotive companies are putting displays in the console instead of Gentex mirrors. To us, these are challenges and opportunities to be engineered. Gentex always has and probably will, again.