Even the best-run businesses on the planet would find it difficult to control 92% of their markets, let alone increase that share over time. But auto supplier Gentex (NASDAQ:GNTX) is not most businesses. The company ended 2016 with a 92% market share in automatic-dimming rearview mirrors, then managed to edge that up to 93% one year later. Hardly exciting stuff, but good enough to earn a market cap in excess of $6 billion and deliver enough excess profit to hand shareholders a 1.9% dividend yield.

Unfortunately, there are downsides to owning such an outsized piece of an industry, such as the fact that the company's fate is inherently tied to the success of the global auto market. Slower-than-expected global auto sales and expected cost increases resulting from tariffs implemented in the first few days of July forced management to lower full-year 2018 guidance.

However, while Wall Street sent shares tumbling on the news, a deeper dive doesn't uncover any reason to panic. In fact, there's a strong case to be made for long-term investors to consider buying this beaten-up auto stock.

A yellow arrow pointing exactly opposite of a group of white arrows.

Image source: Getty Images.

By the numbers

Gentex dropped the bad news on investors when it reported second-quarter 2018 results. But aside from barely missing consensus Wall Street estimates on revenue, the business actually performed relatively well.

Management said that overall vehicle production in North America was down 3% compared to the year-ago quarter, and luxury vehicle production in core markets also declined 3% in that span. Nonetheless, Gentex managed to grow the top line 2.7%, improve gross margin, maintain sales unit volumes in North America, and grow international sales volumes. Here's a rundown of important metrics from the comparison periods:


Q2 2018

Q2 2017



$454.9 million

$443.1 million


Gross profit

$172.8 million

$167.2 million


Operating income

$126.7 million

$125.8 million


Net income

$109.0 million

$88.5 million


North American mirror units sold

3.156 million

3.146 million


International mirror units sold

7.415 million

6.642 million


Source: Press release.

Net income soared thanks to lower corporate income taxes, but that wasn't enough to lift the spirits of Wall Street analysts. Gentex shares dropped 5% the day second-quarter 2018 results were announced, primarily due to management revising full-year 2018 guidance lower. While that's never what investors want to see, a quick glance at the numbers doesn't exactly instill fear.


New Full-Year 2018 Guidance

Previous Full-Year 2018 Guidance


$1.88 billion to $1.91 billion

$1.89 billion to $1.97 billion

Gross margin

37.5% to 38.5%

38% to 39%

Operating expenses

$180 million to $185 million

$180 million to $190 million

Capital expenditures

$110 million to $120 million

$115 million to $130 million

Source: Press release.

The worst part of the new guidance? A $60 million reduction to the upper end of the expected revenue range, which works out to roughly 3%. That, combined with a deeper analysis connecting the new full-year 2018 guidance to what management discussed on the second-quarter 2018 earnings conference call, shows there's an opportunity here

Leading market share, market-beating returns

Wall Street's two main points of contention about Gentex's near-term future are that (1) slowing global auto sales will impact the business, and (2) global tariffs that took effect on July 6 will drive up the cost of doing business. While those would be fair points under the right conditions, both may be overblown given the current market realities.

Management expects year-over-year growth of 7% in North American light vehicle production in the third quarter of 2018. That, coupled with new product launches, will help to lift Gentex's second-half 2018 revenue 7% to 10% compared to the same period of 2017.

A businessman drawing lines.

Image source: Getty Images.

Meanwhile, the expected impact on gross profits from global tariffs is expected to be relatively mild, at just $5 million to $8 million in the back half of this year. For comparison, the business reported $345 million in gross profit in the first half of 2018. Furthermore, the impact from tariffs is already factored into gross margin guidance.

Long-term investors will also be encouraged to know that Gentex management kept its preliminary expectations for 2019 intact, calling for revenue growth of 5% to 10% over this year. Considering the stock has walloped the total return of the S&P 500 over long periods of time, the company has certainly earned shareholders' trust.

GNTX Total Return Price Chart

GNTX Total Return Price data by YCharts

Investors also don't have to look too far to find a compelling argument that the stock is on sale. According to Yahoo! Finance, shares of Gentex currently trade hands at 12.4 times future earnings, a PEG ratio of 0.92, and an enterprise value to EBITDA value of 9.3. All three metrics are at or well below the five-year historical average -- no minor detail in today's relatively expensive market. 

Don't dim your enthusiasm for this stock

For a stock with this pedigree, investors should take a closer look anytime it takes a relatively large fall. Simply put, Gentex stock has delivered long-term total returns well above that of the broader market in both good times and bad times for the global auto industry, proving that its enormous 93% market share isn't quite the liability Mr. Market thinks it might be. Consider that shares have edged out the S&P 500 by 14% in the last decade, which includes the devastating effects of the Great Recession.

Therefore, given the continuously improving product lineup, smart investments over the years by management, and a historically cheap stock, there are ample reasons to consider Gentex stock a buy.