With a daily loss of -13.57% and a 3-month loss of -24.28%, Dorman Products Inc (DORM, Financial) is significantly undervalued based on its Earnings Per Share (EPS) of 2.76. This article aims to provide a comprehensive analysis of Dorman Products' intrinsic value and evaluate its potential for future returns. We invite our readers to delve into this thorough valuation analysis.
A Brief Overview of Dorman Products Inc
Dorman Products Inc is a prominent supplier of original equipment parts for automobiles. The company's portfolio includes automotive and heavy-duty replacement parts, automotive hardware, brake parts, and fasteners. These products are sold under the Dorman brand and its sub-brands OE Solutions, Help!, Conduct-Tite, and HD Solutions. The company primarily operates in the United States, catering to passenger cars, light-, medium-, and heavy-duty trucks as well as specialty vehicles.
Currently, Dorman Products (DORM, Financial) is trading at $62.89 per share, with a market cap of $2 billion. However, the GuruFocus Fair Value (GF Value) estimates its fair value at $148.26, indicating a significant undervaluation. This discrepancy sets the stage for an in-depth exploration of Dorman Products' intrinsic value.
Decoding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at.
When the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given Dorman Products (DORM, Financial)'s current price and market cap, it shows every sign of being significantly undervalued, suggesting a higher potential for long-term returns.
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Examining Dorman Products' Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to purchase shares. The cash-to-debt ratio and interest coverage of a company are great indicators of its financial strength.
Dorman Products has a cash-to-debt ratio of 0.05, ranking worse than 91.47% of 1231 companies in the Vehicles & Parts industry. However, with an overall financial strength of 6 out of 10, Dorman Products' financial condition is considered fair.
Evaluating Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. A company with high profit margins is typically a safer investment than one with low profit margins. Dorman Products has been profitable 10 over the past 10 years, with an operating margin of 7.96%, which ranks better than 69.59% of 1266 companies in the Vehicles & Parts industry. Overall, GuruFocus ranks Dorman Products' profitability at 9 out of 10, indicating strong profitability.
Growth is another crucial factor in the valuation of a company. Dorman Products' 3-year average revenue growth rate is better than 85.74% of 1206 companies in the Vehicles & Parts industry. Furthermore, its 3-year average EBITDA growth rate is 19.3%, ranking better than 71.48% of companies in the same industry.
Assessing ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. Dorman Products' ROIC is 6.98 while its WACC is 6.47.
Conclusion
In conclusion, Dorman Products (DORM, Financial) shows every sign of being significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 71.48% of 1080 companies in the Vehicles & Parts industry. To learn more about Dorman Products stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
