This auto supplier is growing at more than 30% per year, and the company beat analysts’ earnings forecasts by three cents last quarter.
Stoneridge Inc.(SRI)
From Upside
Stoneridge Inc. (SRI) sells a variety of components used in the auto and truck industries, including driver information displays, electronic controls, and tracking and monitoring devices.
Despite currency headwinds that have weighed on sales, the company enjoys solid growth trends. In 2015, adjusted per-share earnings rose 8% and operating cash flow more than doubled. Aided by cost reductions and improved inventory management, gross profit margins were a healthy 27.4%, compared to an industry average of 21.6%.
Stoneridge partly owes its operating momentum to robust global auto production, as about 52% of sales last year were to car makers. Ford, its largest customer, represented about 14% of revenue. The environment remains attractive, as low fuel prices and favorable financing terms are helping drive demand, particularly in the U.S., which accounted for 57% of sales in 2015. Stoneridge generated $33 million in sales related to new program wins and product launches last year, topping its goal of $20 million. Over the next five years, management targets nearly $180 million in new revenue.
The stock looks attractive relative to the 37 auto parts makers in Quadrix. The Overall score is 98, versus an industry average of 72. Stoneridge scores above 80 for Momentum, Quality, Earnings Estimates, and Performance. At 12 times projected year-ahead earnings, Stoneridge trades 13% below the peer-group average. The trailing price/sales ratio of 0.6 is nearly 10% below peers.
The obvious risk to owning the stock is the potential for auto production to slow. The six-analyst consensus projects per-share profits will surge 31% in 2016, well above the 9% growth projected for auto parts makers. Management projects sales growth of 12.5% to 14.0% this year. For the March quarter, estimates call for per-share earnings of $0.23, up 35%.
Stoneridge is being initiated as a Buy.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233- 5922, April 4, 2016