What happened
Shares of Gentex (GNTX 1.44%), which describes itself "a leading supplier of digital vision, connected car, dimmable glass and fire protection technologies," returned 46.3% in 2019, according to data from S&P Global Market Intelligence. For context, the S&P 500 index returned 31.5% in 2019.
(Gentex stock has its foot on the accelerator in 2020: It's returned 4.2% through Jan. 10, compared with the S&P 500's 1.1% return.)
Gentex's automatic-dimming rearview mirrors on bottom. Image source: Gentex.
So what
We can attribute Gentex's market-beating 2019 stock rise largely to a financial performance that slightly exceeded Wall Street's expectations in all three reported quarters of the year.
In the company's most recently reported quarter, the third quarter, its revenue rose 4% year over year to $477.8 million. That result was better than it might seem at first glance, since the General Motors strike negatively affected revenue by about 2% and global light-vehicle production volumes declined 3% quarter over quarter. "This total growth rate of 4% means that we effectively outperformed our underlying markets by 7%-9% during the third quarter," CEO Steve Downing said in the earnings release.
Net income edged up 1% year over year to $111.9 million, which translated to a 5% increase in earnings per share (EPS) to $0.44. The percentage rise in EPS is notable greater than that of net income thanks to the company's share repurchases in the quarter. While EPS growth was modest, it was good enough to beat Wall Street's $0.42 consensus estimate.
Here's what Downing had to say about profitability:
The gross margin in the third quarter of 2019 improved 10 basis points [one-tenth of 1%] versus the same quarter last year, despite the fact that escalating tariff costs negatively impacted gross margin by an additional 50 basis points versus the same time last year. The overall gross margin improvement was driven by our solid, mid-single-digit growth rate, positive product mix, better than expected purchasing cost reductions, and the team's success in mitigating some of the costs related to the tariffs that have been impacting the Company since July 2018.
While Gentex stock hasn't been a big winner for quite some time, it's been a steady solid outperformer. Over the last 10 years, it's returned 294%, compared with the S&P 500's 251% return.
Now what
While the company hasn't yet scheduled a date for the release of its fourth-quarter and full-year 2019 results, they should come out late this month or early in February.
For the full year, analysts expect EPS of $1.64 on revenue of $1.86 billion, representing growth of 1.2% and 1.4%, respectively, year over year. The Street sees a brighter future, with analysts projecting that Gentex will grow EPS at an average annual rate of 15% over the next five years. With a forward price-to-earnings (P/E) ratio of 17.2, the stock is reasonably priced.
