Stoneridge: Our Latest Company You've Never Heard of

 | Aug 01, 2016 | 4:35 PM EDT
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Stoneridge (SRI) , a provider of sensors and controls for industrial, automotive and commercial vehicle use, is the latest subject in our "Companies Never Heard of" series. SRI is a poor man's TE Connectivity  (TEL) , though the stock -- thanks to solid new niche programs, strong organic growth and good operating leverage -- is sitting at an all-time high.

Why? In part because the company has been executing well and its multiple has expanded. More importantly, though, Stoneridge's PST subsidiary houses a fleet management solutions business that has been growing rapidly. The planned purchase announced this morning of Fleetmatics (FLTX) by Verizon Communications (VZ) is a positive sign for Stoneridge.

The company's new business across automobiles and light-duty, heavy-duty, off-road and agriculture equipment platforms has expanded, and so has content. The company's organic growth has accelerated despite cyclical slowdowns in its core end markets. Earnings are projected to rise substantially this year to $1.20 per share. Growth of at least 10% in earnings next year could yield an earnings trajectory toward 1.50 a share.

Stoneridge has appropriately delivered free cash flow, which is has used to pay down debt. Net leverage is a standard 2.1x, and is down from more than 4x a couple years ago.

Stoneridge also sports interesting businesses in Brazil and a joint venture in India called Minda. These businesses position the company to have a global supply chain in place for its large customers looking to access these markets. In Brazil, the company's PST subsidiary has managed its cost structure as economic woes continue to afflict the region. Despite a tough top line at PST, the expectation is that breakeven results or better will be achieved.

With Stoneridge executing quite well at this low point in the cycle, especially in heavy-duty trucks, industrial and agricultural equipment, imagine if these markets ever recover? Stoneridge will be in a strong position to enjoy an upcycle. All the while, this little company, based in Warren, Ohio, has been investing in new products and expanding addressable markets. MirrorEye is one interesting new product that has been gaining traction in the truck market in various parts of the world.

It's been a long time coming for Stoneridge shareholders, but the future remains bright. Should earnings continue growing at this clip, the stock easily can hit $20 or more.

It's important to mention that valuations for companies in this space have expanded. TEL acquired Measurement Specialties for a giant multiple (upwards of 17x EBITDA) in June 2014.

Stoneridge's valuation is nowhere near that level. We look forward to this week's earnings report.

Stoneridge joins Nordson NDSN , Entegris ENTG  and Lindsay LNN  as profiled companies in our "Companies Never Heard of" series.

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