The auto parts industry growth prospects appear promising due to ongoing technological innovations, rapid transition to EVs, growing interest in automotive DIY, an uptick in customization, and the use of advanced components in cars.
Amid this backdrop, investors could consider buying fundamentally strong auto stocks such as Gentex Corporation (GNTX), Lear Corporation (LEA), and Stoneridge, Inc. (SRI). Before exploring the fundamentals of these stocks, let’s first understand what’s shaping the auto industry’s prospects.
Unlike automobile manufacturers, the demand for auto parts is not cyclical. Consistent auto parts sales allow manufacturers to maintain their margins irrespective of the economic cycle. Sales of new vehicles contribute to the growth of the auto parts industry by creating a demand for accessories, sensors, components, etc.
U.S. new vehicle sales hit 1.44 million units in May 2024, representing a 5% year-over-year increase. Although the auto parts industry is not entirely dependent on new vehicle sales, it benefits from the uptick nevertheless.
Vehicle prices have been high over the past few years due to higher raw material costs and the shortage of chips, thus compelling prospective buyers to stick to their old cars for longer. This has resulted in the need for auto parts and components for repair, maintenance, upgradation, and to keep them running.
Additionally, the need for accessories, better performance figures, personalization, and customization contributes substantially to the industry's growth. Additionally, making automotive parts available on e-commerce platforms benefits the industry and serves as a significant growth driver.
The U.S. automotive aftermarket size is estimated to reach $336.79 billion by 2033, exhibiting a CAGR of 4.4%.
Considering these conducive trends, let’s examine the fundamentals of the three Auto Parts stock picks, starting with the third in line.
Stock #3: Gentex Corporation (GNTX)
GNTX designs, develops, manufactures, markets, and supplies digital vision, connected car, dimmable glass, and fire protection products in the U.S., Germany, Japan, Mexico, Republic of Korea, and internationally. It operates through Automotive Products, and Other segments.
On February 27, 2024, GNTX announced the launch of HomeLink Smart Home Solutions, a comprehensive and curated suite of smart home products controlled and monitored by a single app. This launch helped unify the worlds of car connectivity and home automation into a seamless ecosystem.
GNTX’s trailing-12-month CAPEX / Sales of 7.39% is 146.2% higher than the industry average of 3%. Similarly, its trailing-12-month Return on Total Capital and Return on Total Assets of 14.19% and 16.18% are 129.1% and 286.9% higher than the industry averages of 6.19% and 4.18%, respectively.
GNTX’s net sales for the fiscal first quarter that ended March 31, 2024, increased 7.2% year-over-year to $590.23 million. Its gross profit grew 15.7% from the year-ago quarter to $202.24 million. The company’s net income stood at $108.23 million, up 10.9% over the prior-year quarter. Also, its earnings per share rose 11.9% from the year-ago quarter to $0.47.
Analysts expect GNTX’s revenue and EPS for the quarter ending June 30, 2024, to increase 7.1% and 11.4% year-over-year to $624.66 million and $0.52, respectively. The company surpassed Street revenue and EPS estimates in three of the trailing four quarters, which is impressive. Over the past year, the stock has gained 25.5%, closing the last trading session at $34.24.
GNTX’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
GNTX has a B grade for Stability and Quality. It is ranked #34 out of 61 stocks in the B-rated Auto Parts industry. Click here to see GNTX’s Growth, Value, Momentum, and Sentiment ratings.
Stock #2: Lear Corporation (LEA)
LEA designs, develops, engineers, manufactures, assembles, and supplies automotive seating, and electrical distribution systems and related components for automotive original equipment manufacturers in North America, Europe, Africa, Asia, and South America. It operates through Seating and E-Systems segments.
On April 29, 2024, LEA announced an agreement to acquire WIP Industrial Automation, set to close by the third quarter of 2024. This move will expand LEA's global automation and digital capabilities, boosting innovation in next-generation automation technologies by integrating ASI Automation, Thagora Technology SRL, and InTouch Automation.
LEA’s trailing-12-month asset turnover ratio of 1.61x is 62.9% higher than the industry average of 0.99x. Likewise, its trailing-12-month Return on Total Capital of 7.83% is 26.5% higher than the industry average of 6.19%.
For the fiscal first quarter that ended March 30, 2024, LEA’s net sales stood at $5.99 billion, up 2.6% year-over-year. For the same quarter, its adjusted net income and earnings per share increased 10.5% and 14.4% from the year-ago quarter to $183.20 million and $3.18, respectively.
As of March 30, 2024, LEA’s total current assets amounted to $7.91 billion, compared to $7.64 billion as of December 31, 2023.
Street expects LEA’s EPS and revenue for the quarter ending June 30, 2024, to increase 4.2% and 2.6% year-over-year to $3.47 and $6.16 billion, respectively. The company surpassed consensus EPS and revenue estimates in three of the trailing four quarters. LEA has declined 4.3% over the past month, closing the last trading session at $122.38.
LEA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has a B grade for Value. It is ranked #32 in the same industry. Get LEA’s Growth, Momentum, Stability, Sentiment, and Quality ratings here.
Stock #1: Stoneridge, Inc. (SRI)
SRI designs and manufactures engineered electrical and electronic systems, components, and modules for the automotive, commercial, off-highway, motorcycle, and agricultural vehicle markets internationally. The company operates through three segments: Control Devices, Electronics, and Stoneridge Brazil.
SRI’s trailing-12-month CAPEX / Sales of 3.51% is 17% higher than the industry average of 3%. Its trailing-12-month asset turnover ratio of 1.45x is 46.1% higher than the industry average of 0.99x.
SRI’s adjusted sales for the fiscal first quarter that ended March 31, 2024, amounted to $239.20 million, up 3% year-over-year. Its adjusted gross profit and EBITDA grew 12.6% and 83.3% from the year-ago value to $48.40 million and $6.60 million, respectively. Moreover, as of March 31, 2024, SRI’s total current assets amounted to $431.34 million, compared to $429.39 million as of December 31, 2023.
For the quarter ending September 30, 2024, SRI’s revenue and EPS are expected to increase 5.5% and 50% year-over-year to $251.22 million and $0.15, respectively. It surpassed consensus revenue and EPS estimates in three of the trailing four quarters. The stock has declined 2.5% over the past month to close the last trading session at $15.49.
SRI’s POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
SRI has a B grade for Growth and Sentiment. Within the Auto Parts industry, it is ranked #30. Click here for the additional POWR Ratings of SRI (Value, Momentum, Stability, and Quality).
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GNTX shares were trading at $34.16 per share on Friday morning, down $0.08 (-0.23%). Year-to-date, GNTX has gained 5.35%, versus a 12.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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