GNTX Stock Study (9-3-24)
Posted by Mark on October 23, 2024 at 06:53 | Last modified: September 3, 2024 14:39I recently did a stock study on Gentex Corp. (GNTX) with a closing price of $31.33.
M* writes:
> Gentex was founded in 1974 to produce smoke-detection equipment.
> The company sold its first glare-control interior mirror in 1982 and its
> first model using electrochromic technology in 1987. Automotive
> revenue is about 98% of total revenue. The company is constantly
> developing new applications for the technology to remain on top.
> Sales in 2023 totaled about $2.3 billion with 50.6 million mirrors
> shipped. The unit mix breaks out as 63% interior and 37% exterior,
> [vs.] 31% exterior in 2019… company is based in Zeeland, Michigan.
Over the last 10 years, this medium-size company grows sales and earnings at annualized rates of 3.8% and 5.3%, respectively. Lines are mostly up, straight, and parallel except for sales/EPS decline in ’20 and an additional EPS decline in ’22. Five- and 10-year EPS R^2 are 0.05 and 0.62, respectively. Although the former is concerning, Value Line gives an Earnings Predictability score of 75.
Over the past decade, PTPM leads peer and industry averages despite falling from 30.2% (’14) to 22.0% (’23) with a last-5-year mean of 23.3%. ROE leads peer and industry averages while ranging from 15.7% in ’22 to 22.8% in ’18 with a last-5-year mean of 18.6%. Debt-to-Capital is less than peers and the industry by falling from 14.5% (’14) to 0% in ’18 and beyond.
Quick Ratio is 1.9 per M* who assigns a “Standard” rating for Capital Allocation and a “Narrow” Economic Moat. Value Line [only?] gives a B++ grade for Financial Strength.
With regard to sales growth:
- YF projects YOY 5.4% and 7.9% for ’24 and ’25, respectively (based on 7 analysts).
- Zacks projects YOY 5.8% and 9.2% for ’24 and ’25, respectively (3 analysts).
- Value Line projects 6.8% annualized growth from ’23-’28.
- CFRA projects 4.8% YOY and 7.0% per year for ’24 and ’23-’25, respectively.
- M* offers a 2-year ACE of 6.4%/year and its own 5-year annualized estimate of 5.5%.
My 5.0% forecast is near bottom of the range.
With regard to EPS growth:
- MarketWatch projects 17.0% and 12.4% per year for ’23-’25 and ’23-’26, respectively (based on 10 analysts).
- Nasdaq.com projects 8.8% YOY and 10.7% per year for ’25 and ’24-’26, respectively [5/5/1 analyst(s) for ’24/’25/’26].
- Seeking Alpha projects 4-year annualized growth of 15.6%.
- YF projects YOY 4.3% and 20.8% for ’24 and ’25, respectively (8), along with 5-year annualized growth of 21.6%.
- Zacks projects YOY 6.5% and 18.3% for ’24 and ’25, respectively (5), along with 5-year annualized growth of 15.6%.
- Value Line projects 10.6% annualized growth from ’23-’28.
- CFRA projects 2.2% YOY contraction and 9.3% growth per year for ’24 and ’23-’25 along with a 3-year CAGR of 17.0%.
- M* projects long-term growth of 9.9% per year.
My 9.0% per year forecast is below the long-term-estimate range (mean of five: 14.7%). Initial value is 2024 Q2 EPS of $1.79/share (annualized) instead of ’23 EPS of $1.84.
My Forecast High P/E is 16.0. Over the past decade, high P/E ranges from 15.7 in ’17 and ’18 to 26.9 in ’22 with a last-5-year mean of 22.6 and a last-5-year-mean average P/E of 19.0. I am near bottom of the range (only ’17 and ’18 are less).
My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 10.9 in ’16 to 20.3 in ’21 with a last-5-year mean of 15.4. I am forecasting near bottom of the range (only ’16 is less).
My Low Stock Price Forecast (LSPF) is $23.00. Default ($19.70) based on initial value from above seems unreasonably low at 37.1% (29.4%) less than the previous close (52-week low). My forecast is 26.6% and 17.6% less, respectively, and less than the 2022 Low Price.
Over the past decade, Payout Ratio (PR) ranges from 20.4% in ’18 to 40.0% in ’21 with a last-5-year mean of 32.5%. I am forecasting below the range at 20.0%.
These inputs land GNTK in the HOLD zone with a U/D ratio of 1.7. Total Annualized Return (TAR) is 8.3%.
PAR (using Forecast Average—not High—P/E) is less than I seek for a medium-size company at 4.9%. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR instead.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 199 studies (my study and 56 other outliers excluded) over the past 90 days, averages (lesser of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 7.9%, 9.7%, 21.0, 14.7, and 31.6%, respectively. I am lower across the board. Value Line’s projected average annual P/E of 18.0 is greater than MS (17.9) and greater than mine (13.5).
MS high / low EPS are $2.90 / $1.81 versus my $2.75 / $1.79 (per share). My high EPS is less due to a lower growth rate. Value Line’s $3.05 is greater than both.
MS LSPF of $25.00 implies Forecast Low P/E of 13.8: less than the above-stated 14.7. MS LSPF is 6.0% less than the default $1.81/share * 14.7 = $26.61 resulting in more conservative zoning. MS LSPF is 8.7% greater than mine, however.
With regard to valuation, PEG is 1.0 and 1.8 per Zacks and my projected P/E, respectively: fairly valued. Relative Value [(current P/E) / 5-year-mean average P/E] is also fair at 0.92.
MOS is robust because my inputs (including most-recent quarterly EPS) are near or below respective analyst/historical ranges and MS averages. This is further supported by an MS TAR (15.5%) 7.2%/year greater than mine.
My biggest concern about the company is historical and projected sales growth falling well short of double digits.
Per U/D, GNTX is a BUY < $23. BI TAR criterion is met ~ $21/share based on forecast high price of $44 and 1.3% dividend.
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