Several problems with your calculations:
First of all, I expect Gentex to grow at closer to 25% over the next 2-3 years. Last year's earnings were .49 on a continuing operations basis. This year they will be .65 (taking out effects of the strike), next year .80 and $1.00/share in '00.
Secondly, you are setting the P/E at the same level as the growth rate (20.8). I do agree that the P/E should equal the growth rate (25%), but not as a rule of thumb, as you appear to be doing. Based on the very low level of interest rates, investors are seeking higher returns than what can be earned from risk free fixed income investments like treasuries. Therefore, they are willing to pay more for "risky" earnings streams from stocks. A 25% grower would normally deserve a P/E of more like 35-40. However, because of the cyclical exposure of Gentex, I discount that multiple to 1X the growth rate or just slightly higher (25-30).
Last, most people use these P/E's on a forward-looking basis, meaning the NEXT 12 months earnings, not the LAST or trailing 12 months earnings.
So, using my calculations, forward earnings are .75/share, the P/E is 25, and the stock price should be $19. By year end 99, it should be in the high 20's.
The reason I think that the recession is substantially priced into the stock is because the P/E on recessionary (depressed) earnings will expand slightly as people look past the trough to the expansion and the growth in auto sales that this will bring. Therefore, I believe that should GNTX earn .80 next year and only .88 in '00, the P/E on that would still be maybe 20, giving you a stock price of $17.50. Right now, the price assumes a P/E of 14 on those recessionary numbers, which is pretty cheap.
Just my opinion. I'm not buying anymore today, even with the stock lower - I've made my play. I'll have to wait it out now. Turs |
