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Why Gentex Shares Slid and Then Recovered

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Gentex (Nasdaq: GNTX  ) were down as much as 11% early this morning after a subpar earnings report but battled back to finish essentially flat.

So what: The company, which makes electro-optical products such as automotive mirrors as well as fire safety gadgets, said EPS fell slightly to $0.29 a share from $0.30 a year ago, and revenue declined by 0.5% to $268.2 million. The results beat EPS projections by a penny but came up short on the top line. Gentex is heavily dependent on the European market, and CEO Fred Bauer said that "European economic conditions could have had a negative impact on product mix." Management guided for flat growth in the fourth quarter and scaled back full-year guidance for certain automotive products.

Now what: When stocks bounce back this quickly after a disappointing earnings report, it generally indicates that the market sees a buying opportunity. Shares of Gentex have fallen nearly 50% over the past year, but this is a market leader with 88% share in some segments, and it makes technical products with high barriers to entry. European weakness may continue to hamper revenue growth in the coming quarters, but as a long-term play, the price looks reasonable at a P/E of 14.5, not to mention a 3.1% dividend yield. Growth of 22% in North American mirror units in the past quarter indicates that there's still plenty of potential upside.

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Jeremy Bowman has no positions in the stocks mentioned above. The Motley Fool owns shares of Gentex. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Related Tickers

10/21/2016 4:00 PM
GNTX $17.03 Down -0.03 -0.18%
Gentex CAPS Rating: *****