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small-cap

A Compelling Bet on This Auto Components Stock – STRT

Feb 15, 2022 | Team Kalkine
A Compelling Bet on This Auto Components Stock – STRT

Strattec Security Corp.

STRT Details

Strattec Security Corporation (NASDAQ: STRT) creates, produces, and distributes mechanical locks, electronic locks, and keys. It also manufactures ignition lock housings and access control equipment. The company provides full-service aftermarket support and ships equipment to customers in the United States, Canada, Mexico, Europe, South America, Korea, and China.

Latest News:

  • Fire Accident: VAST LLC, STRT's joint venture company, had a fire at its Taicang, China factory on January 28, 2022, affecting a paint line. As per the company's public information,  VAST China is currently relocating production to its Jingzhou, China site. Additionally, insurance coverage and equipment impairment are presently being investigated.

Q2FY22 Results (ended December 26, 2022)

  • Slight Decrease in Sales: The company reported a slight decrease in net sales to USD 112.91 million in Q2FY22 compared to USD 127.36 million in Q2FY21, due to global semiconductor chip shortage.
  • Stable Cash Position: The company's cash was USD 14.07 million as of December 26, 2021, compared to USD 14.46 million as of June 27, 2021.
  • Healthy Balance Sheet: The company's total current assets were USD 177.92 million and USD 174.90 million, respectively, as of December 26, 2021, and June 27, 2021, compared to current liabilities of USD 66.84 million and USD 77.57 million, respectively, indicating negligible liquidity risk.

Key Risks:

  • Competition Risk: STRT competes in a fiercely competitive automotive component supply market, where larger companies with better financial and technological resources compete for head-on. As a result, competitors' enhanced innovation or improved product development may harm the company's market share and its financial performance.
  • Customer Concentration Risk: In FY21, STRT's three significant customers (General Motors, Fiat Chrysler Automobiles, and Ford Motor Company) accounted for 62% of net sales and 61% of receivables, respectively. As a result, losing any of these critical clients could harm the company's bottom line. 

Valuation Methodology: EV/Sales Multiple based Relative Valuation