Stock Of the Week - Gentherm (THRM)

The Hidden Gem in the Automobile Industry (Gentherm)

Gentherm (THRM) is the premier leader in thermal technologies specifically their focus is on the design, development, and manufacturing of innovative thermal management technologies and cable systems. The climate controlled seat system is the main focus of the company. It is designed to provide thermal comfort to automobile passengers. 

The company's strategy is to "market to the major manufacturers that our products represent an attractive feature that will be embraced by consumers and have favorable economics, including high profitability, to these customers."

Highlight Fundamentals

Gentherm's revenues have grown at a tremendous rate since 2009 from a paltry $60.9M to a whopping $662.1M in 2013. In only five years, revenues has increased over ten times the amount in 2009. What is even more astonishing is the fact that net income attributable to Gentherm Incorporated has grown at an even more blistering pace. In 2009, net income attributed to Gentherm was $256,000 versus in 2013 it was recorded at $33.8M. 

Much of this is riding the recently hot automobile industry. Per the LA Times, in August 2014, automakers sold about 1.6 million vehicles which is about a 3% increase compared to the same period a year earlier. This August has been quoted to be the best in over a decade! One of the latest trend in the industry is to have heated seats in cars. What I can gather is that this is truly Gentherm's bread and butter at the moment. Gentherm is by no means a small player in the market as they are supplying big name manufacturers such as General Motors, Hyundai, Volkswagen, BMW, Ford, and Renault/Nissan and Honda with auto parts. Why have you not heard of them? This is well-kept secret to many investors as they do not sell directly to consumer. 

Recently Gentherm purchased all of remaining outstanding shares of W.E.T. Based in Odelzhausen, Germany, W.E.T. is a global manufacturer of automotive seat comfort systems, specialized automotive cable systems and other non-automotive product solutions. This has only helped Gentherm move towards becoming the global leader in thermal technologies.

As with many fast-growing companies, we will look to see how they are funding their operations. It is without a doubt companies like this will have debt. After all, even with Apple's huge cash stash, it still decides to issue bonds and hold debt. To much of my surprise, Gentherm holds debt a very low interest rates. I'm talking about at rates of 4.25% or lower. This is not typical for companies of Gentherm's size, which currently sits at an approx. $1.8B market cap. 

Another highlight is the company's gross margin. For the six months ended June, gross margin was approximately 29.4%, which is an increase compared to the same period in the prior year of 25.6%. This shows that the company is without a doubt growing. The increase in gross margin was due to new program launches and strong production volumes and sales of vehicles equipped with climate controlled seat systems mainly in the luxury segment of the automobile market. 

While much of Gentherm's revenue (over 95% in the quarter ended June 30th) is derived from the automobile industry, it has made a concerted effort in 2014 to enter into the industrial segment. This segment is focused on improving efficiency of thermoelectrical devices and advanced heating wire technologies for applications outside of the automobile industry. Also included are governmental sponsored research projects in the U.S. and Europe. This only adds to the limitless potential of the company's reach beyond the automobile industry.

Highlight Technicals

From a technical perspective, Gentherm has been on an absolute tear. It has risen from about $23/share to just a hair above $50/share as of early September 2014. However, it appears as if it is consolidating before what could be another breakout above $50.

Personally, I would've liked to have entered in at the retest of the 50 day moving average late May. As you can see the hammer candlestick (highlighted below) served as a reversal of the small downtrend. However, that boat has sailed. The next opportune time to enter the trade would be break of the $50 or a retest of the lower trading range just under $42.50. A break of the $50 range would signify that resistance has been broken. Albeit it is most likely more of a psychological resistance at $50 than anything.  

The oscillators are showing that the stock still needs to work off overbought conditions and waiting a couple weeks before entering could lead to a more beneficial price. As you can see, in early June the oscillator dipped below 25. Coincidentally, this also happened to be the retest of the 50 day moving average and an excellent buying opportunity.

Disclaimer: This article is written for informational purposes only and not intended for investment advice.
Disclosure: I do not have a position in THRM.

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