The auto parts industry is thriving despite facing numerous challenges that could have hindered its future growth. Supply chain disruptions, caused by global political unrest, increased shipping costs, increasingly high demand for parts causing production problems, as well as sustainability demands by governments worldwide have disrupted the industry’s growth.

However, despite facing these challenges, the sector has shown tremendous resilience. With manufacturers strictly abiding by government regulations for environmentally sustainable and highly efficient automobile products and gradually fading supply chain disruptions, the auto parts industry is forecasted to reach $1.33 trillion by 2034, growing at a CAGR of 6.2%.

Amid this backdrop, Dorman Products, Inc. (DORM - Get Rating) has emerged as a prominent player in the auto parts industry. The company offers numerous replacement and upgrade parts for commercial and passenger vehicles. DORM’s shares have surged 15.5% over the past three months and 49.6% over the past nine months, to close the last trading session at $133.49.

Now, let us dive deeper into the factors that could shape DORM’s performance in the near future.

Recent Developments

On October 21, 2024, DORM announced the release of new aftermarket components and assemblies, expanding its catalog of more than 133,000 SKUs. Products including an exhaust manifold repair clamp, a transmission gear shift bracket and a flexible braided stainless steel fuel line among others were reported to be released.

The range of aftermarket exclusives and first-to-aftermarket solutions could provide millions of repair opportunities for parts distributors, retailers and repair shops. This could enhance the company’s portfolio of offerings.

On September 16, 2024, DORM announced the release of hundreds of new aftermarket automotive components and assemblies. The company reported the release of an upgraded loaded magnetic strut and ready-to-install strut assembly, a fuel pump driver module, a turbocharger installation kit, a turbocharger oil feed line, among others.

The release strengthens DORM’s portfolio of offerings and enhances the company’s position in the auto-parts industry while also providing the freedom and ability to keep vehicles on the road for everyday drivers.

Stable Historical Growth

Over the past three years, DORM has demonstrated consistent growth across key financial metrics. Its revenue and EBITDA grew at a CAGR of 16.4% and 24.9%, respectively. Moreover, net income expanded at a CAGR of 11.7%, whereas its EPS grew at a CAGR of 12.9%.

Sound Financials

For the fiscal 2024 third quarter that ended September 28, DORM’s net sales increased 3.2% year-over-year to $503.77 million. Its adjusted gross profit rose 11.2% from the year-ago value to $203.80 million.

Additionally, the company’s adjusted net income and adjusted EPS grew 36.1% and 40% from the prior year’s quarter to $60.24 million and $1.96, respectively. As of September 28, 2024, DORM’s cash and cash equivalents stood at $45.13 million, compared to $36.81 million on December 31, 2023.

Optimistic Analyst Estimates

Analysts expect DORM’s revenue and EPS for the fiscal 2025 first quarter (ending in March) to increase 2.9% and 14.3% year-over-year to $482.23 and $1.50, respectively. In addition, the company exceeded the consensus EPS estimates in each of the four trailing quarters, which is impressive.

Looking at the full fiscal year ending December 2025, DORM’s revenue and EPS are expected to rise 4.2% and 9.1% from the prior year to $2.08 billion and $7.53, respectively.

High Profitability

DORM’s trailing-12-month gross profit margin of 39.54% is 5.3% higher than the industry average of 37.55%. Its trailing-12-month EBIT margin stands at 17.38%, 114.5% higher than the industry average of 8.11%.

In addition, the company boasts a trailing-12-month net income margin of 9.43%, which is 116.9% higher than the sector average of 4.35%. Also, the stock’s trailing-12-month levered FCF margin of 9.57% is 113.1% higher than the industry average of 4.49%.

POWR Ratings Reflects Optimism

DORM’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

DORM has an A grade for Sentiment, which is in line with the optimistic analyst estimates. Plus, the stock holds a B grade for Quality, supported by profitability measures that exceeded industry benchmarks. Moreover, the company earns a B grade for Stability, highlighted by its 60-month beta of 0.89.

Within the A-rated Auto Parts industry, DORM is ranked #7 out of 60 stocks. Beyond what is stated above, we have also given DORM grades for Momentum, Value, and Growth. Get all DORM ratings here.

Bottom Line

DORM has strengthened its position as a top contender for the emerging auto parts industry owing to its wide range of offerings, which supports parts dealers with increased repair opportunities and drivers with an increased driving life.

Given DORM’s impressive analyst estimates, strategic market position, expansive portfolio of offerings, high profitability, and low volatility, now could be the ideal time to consider adding the stock to one’s portfolio.

How Does Dorman Products, Inc. (DORM) Stack Up Against Its Peers?

Although DORM’s near-term outlook appears sound, it may be worthwhile to explore its industry peers, who also exhibit even stronger POWR Ratings. So, consider these A (Strong Buy) rated stocks from the Auto Parts industry:

DENSO Corporation (DNZOY - Get Rating)

Continental Aktiengesellschaft (CTTAY - Get Rating)

Ituran Location and Control Ltd. (ITRN - Get Rating)

To explore more A or B-rated Auto Parts stocks, click here.

What To Do Next?

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DORM shares were unchanged in premarket trading Wednesday. Year-to-date, DORM has gained 3.04%, versus a 3.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Aritra_Gangopadhyay

Aritra is a financial journalist dedicated to breaking down complex financial topics into simple, actionable insights. Holding a Master’s degree in Economics, he uses his analytical expertise to help investors uncover unique opportunities for long-term success. More...

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