Today’s Stock of the Week is from a company that helps make your old car run like new. And since people are holding onto cars longer than ever, the stock stands to benefit greatly.
Dorman Products Inc. (DORM) occupies a unique niche in the auto-repair market. It makes replacement car and truck parts that are designed to be better than the ones originally used in new cars.
Dorman’s parts are not generally installed as replacement parts after accidents, which would require Dorman to deal with insurance company limits on costs. Instead, vehicle owners and some independent repair shops use Dorman parts as replacements when original parts wear out. Because its parts are designed to outperform the originals, Dorman can charge more for them than it could charge for more common “commodity parts”—so it has both pricing power and higher profit margins than other parts makers. Half its revenue comes from sales to distributors serving repair shops, the rest from major retailers who sell directly to consumers such as AutoZone and Genuine Parts.
Dorman gives investors a way to participate in car owners’ increasing tendency to keep vehicles longer and therefore to replace parts that are not covered by insurance. Revenue is growing steadily, from $860 million last year to a likely $920 million this year and $988 million in 2018.
Fiscal year: December. Earnings per share: 2018 est./$3.80…2017 est./$3.47…2016/$3.07.
Charles L. Travers is co-portfolio manager of the $223 million Motley Fool Great America Fund (TMFGX), Alexandria, Virginia. FoolFunds.com