I own no position in this company, but it is on my watch list. This is presented just to spur discussion of different names.
Who are they?
Gentex has several products, but most well known (and their largest segment by far) is their self dimming mirrors. They control about 90% of the market for self dimming mirrors in automobiles. This product also makes up about 98% of revenues (more on that later). They also make fire protection equipment and aircraft windows.
What is their moat?
Auto dimming mirrors. That's pretty much the company as of now. While they are dominate in the market, self dimming mirrors are only in about 36% of light autos produced today. Gentex would love to see that number go up as the technology migrates into lower level cars. Controlling 90% of the market would make it a big challenge for another supplier to develop a significantly better technology that would make OEMs want to switch. Morningstar gives this a narrow moat rating, which I think is fair.
Where will their growth come from?
As discussed, wider use of self dimming mirrors would be a huge boon to the company. This is the easiest growth as it involves putting an existing product in more things.
They have additionally been moving into aircraft windows. Their self dimming technology is used on the Boeing 787 and 777x. Due to the long cycle time of airframe designs, this is a limited field (they logged about 5% growth in this segment last year). However, if their windows make it into the next generation of narrow body aircraft, this could be a big runway.
They also are breaking into medical devices. Using their lighting technology they have developed lights that adjust with a surgeons vision. This is a promising field that could diversify the company.
What are their risks?
Concentration is the biggest risk, in my opinion. Having so much of your revenue in one field can be ripe for disruption. So far, no one has come close, but it is a risk. There could also be technology that replaces mirrors, such as cameras. Currently this is not allowed in the US, but some countries have allowed this. However, cameras are heavier and more expensive than mirrors, so it is not clear if OEMs want to change. Lastly, full self driving would eliminate the need for mirrors. I am of the opinion that full FSD, without the option for human control, is at least a decade away. As long as the option for human control exists, cars will need mirrors. So this is a long term risk, but not one that I am prepared to look at now.
Why is this company so great?
Gentex has a pristine balance sheet. They carry no debt as of right now and have great cash flows. ROE and ROIC are in the high teens, occasionally touching the low 20s. Gross margins are 33%, which actually went down a bit during the pandemic. They fund R&D, as well as pay a dividend and buyback shares. The current dividend is 1.7%. They consistently buy back shares and lower share count. The share count peaked in 2012 at 290 million, and is now down to 233 million. That is about a 23% reduction in share count in 10 years. Not to shabby.
The last few years have been a little soft for Gentex, as auto production slowed during the semiconductor shortage. As a result the stock is a little beat down right now. Most fair value estimates are in the mid $30s, and its currently trading at $28.50, so possibly a slight discount. Most analysts hav this company growing EPS around 15% annually, which is solid growth from an established company. I am quite intrigued.
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