Gentex (GNTX), BetterInvesting Magazine’s Undervalued Stock for the May issue, attracted 16 buys and five sells for the eight weeks ended March 1, according to myICLUB.com data. The supplier of automatic-dimming rearview mirrors and electronics to the automotive industry has been a popular subject among BetterInvesting members, with users of our online tools completing more than 300 studies of the stock for the 90 days ended March 24. A look at the completed judgments in the online tools’ Member Sentiment feature shows that members see solid potential return for the stock over the next five years.
When members of the magazine’s Editorial Advisory and Securities Review Committee meeting discussed Gentex, they mentioned the well-managed company’s history of continued innovation, introducing new products that maintain growth.
The company has managed to grow sales and earnings at relatively consistent rates, despite serving the highly cyclical auto industry. Historical sales growth is 12.6 percent while long-term earnings per share growth is over 16 percent. Only 2008 and 2009 were down years for Gentex.
The company’s percentage of pre-tax profit on sales generally increased over the past five years. The PTP was 30 percent in 2015, compared with an average of 27 percent for the past five years. Meanwhile, return on equity was 18.7 percent in 2015, up from the five-year average of 17.5 percent. These management numbers compare quite well with those of peers.
So, seeing that Gentex is a high-quality company, BetterInvesting members naturally are interested in discovering its investment potential. In the online tools, their five-year annual sales growth estimates were mostly in the range of 8 percent to 10 percent, with forecasts for earnings per share growth roughly the same. These are conservative estimates relative to historical rates, but note that last year’s EPS growth was 9.6 percent, while the analysts’ consensus estimate of long-term EPS growth currently averages 11 percent.
The average forecasts of high and low price-earnings ratios for the next five years were close to the historical averages of 23.4 for the high P/E and 13.9 for the low P/E. The average potential return was forecast at more than 20 percent.
Stocks are mentioned for educational purposes only. No investment recommendations are intended.