Gentex: Dimmable Dollars?

12/18/2015 8:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Our latest new recommendation was founded more than 40 years ago as a maker of high quality fire protection products, observes Ingrid Hendershot, money manager and editor of Hendershot Investments.

Founder Fred Bauer continues to serve as CEO of Gentex (GNTX), which revolutionized the industry with the first dual-sensor photoelectric smoke detector. Today, millions of Gentex smoke detectors and signaling devices can be found in hospitals, hotels, and office buildings.

Gentex, however, is best known as the pioneer of the electrochromic automatic-dimming mirror industry. Over the years, it has made nighttime driving safer for millions of drivers by providing the auto industry with mirrors that detect and eliminate dangerous rearview mirror glare.

Using its experience in electrochromics, Gentex began delivering in 2010 the first dimmable aircraft windows for the aviation industry. At the touch of a button, window shades for aircraft cabins switch from clear state to dark.

In 2013, Gentex acquired HomeLink, whose wireless vehicle and home communications products are integrated into the company’s car mirrors and enables drivers to remotely activate garage door openers, entry door locks, home lighting, and security systems.

Gentex boasts more than 1,000 US and foreign patents on its technology and products. These patents provide the company with a competitive advantage in its markets.

Gentex has always maintained a strong balance sheet thanks to the company’s excellent cash flow generation. Free cash flow has compounded at a 15% annual rate over the last decade.

Management’s sound capital allocation strategy is first and foremost to continue to grow its dividend, which has compounded at a 9% annual rate over the last five years and currently yields 2%.

Management believes the stock is undervalued; 2.1 million shares were repurchased during the last quarter and 4.9 million shares were repurchased year-to-date through September 30, 2015. The board recently authorized an additional five million shares for repurchase.

Long-term investors should reflect on Gentex, a high quality, innovative market leader with a strong balance sheet and a sound capital allocation strategy. Buy.

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