Is Strattec Security Stock A Buy?

Strattec Security Corp. (NASDAQ:STRT) is an American manufacturer of mechanical and electronic keys, locks, and security devices for the automotive market. The company spun off from Briggs & Stratton Corporation to become a leader in automobile locking systems.

You likely already use its products without even knowing it, so is Strattec Security stock a Buy?

It doesn’t matter if you believe in electric vehicles or V8 gas guzzlers, foreign or domestic. What all vehicles big and small have in common is the need for basic security measures. Of course, locking your doors and starting your car is a lot more complicated than it used to be.

And it’s not just the doors – there are a variety of locking mechanisms used in modern vehicles. It was always that way, and the company built relationships with all the legacy automakers. Even Tesla Inc (NASDAQ:TSLA) uses Strattec components in its vehicles.

Is Strattec Security a safe bet for investors or  will it cause their portfolios to breakdown?

Strattec Security Serves Clients From Toyota To TSLA

Strattec Security began as a Briggs & Stratton division and focused on small engines and automotive locks. As the automotive industry grew, so did the accessories that needed to be locked, like the ignition, and transmission.

One car has multiple locks, and the company easily positioned itself with original equipment manufacturers (OEMs) as a supplier. As cars picked up in society, so did the business. But it only represented a small part of the overall Briggs & Stratton revenue, so it was spun off in 1995.

Since then, the company expanded globally while adapting to new technologies. Today, it works on everything from electronic access to security for both vehicles and buildings. It provides both OEM and aftermarket solutions.

As the world shifts to autonomous electric vehicles, a lot of manufacturers were squeezed out. But Strattec diversified across multiple products for a full suite of solutions on every vehicle on the market. From Toyota to Tesla, there’s a good chance your car, van, or truck uses its parts.

That type of exposure gives bullish investors reason to wonder if the stock is worth investing in.

Is Strattec Security Stock A Buy?

Strattec Security Corp started 2021 with a market capitalization over $200 million, and it quickly pushed up to over $235 million in early Q1.

Its price-to-earnings ratio was over 30x. Share prices fell to a 52-week low of $11.74 but quickly rebounded to recover to almost $20 per share.

The company had net sales of $126.2 million for the first fiscal quarter of 2021, giving the company $8 million in net income. This is a year-over-year increase of $6.8 million from the same quarter of the prior year.

Its biggest customers were General Motors (GM), Fiat Chrysler, and Ford Motor Company (F). However, it does service pretty much every vehicle manufacturer on the planet. This exposes it to foreign currency conversions, which we’ll discuss in the next section.

Strattec Security holds $300 million in assets, with $160 million of that being liquid. It does have about $35 million in debts, but it has a nice cushion of cash to invest and grow.

Before the pandemic, the stock had an 0.88 percent annual dividend yield, which was paid quarterly. The last $0.14 cash dividend payment was made in March 2020. There’s no word yet when the company will restart its payments.

And that brings up the inherent concerns of investing in Strattec stock.

Will Strattec Security Lock Be Broken?

Strattec Security has a great global positioning that helps fuel sales. But those sales happen in foreign currencies, which means the company can have trouble moving money between regions. This siphons some profits away from investors and can be a problem.

Also, the new car market is stalling, which means the company’s new orders could suffer. They already did when auto manufacturers temporarily halted production.

The push to working from home also leaves more retail and office buildings empty. This means secure areas could be less necessary. It makes growth more difficult until we understand the full economic impact of economic restrictions on commercial real estate.

And although it’s deeply entrenched, the company still has competitors.

Will Amazon Attack Strattec Security?

Locks are becoming more prolific in home improvement because of the rise of smart locks. These electronic locking solutions connect with security systems and more. That puts Strattec Security in competition with traditional lock companies like Schlage and Kwikset, among others.

On top of this, tech-based newcomers like August Home and even Amazon’s Ring division is heavily invested in the market. Should any of these companies push into vehicles and commercial buildings, Strattec could find itself in trouble.

But it operates in a relatively stable market, and it could easily traverse any issues moving forward.

Is Strattec Security Stock A Buy? The Bottom Line

Strattec Security is a lock and components company that is deeply entrenched in the auto industry. It makes locking and security solutions for both vehicles and commercial buildings. As technology advances, so do its solutions.

From autonomous vehicles to keyless entry, vehicle security is an evolving market. Home security is evolving too, and Strattec Security can grow into this segment while others elbow their way into its lane. This back-and-forth will define the company’s success prospects over the next decade.

Vehicles may change their fuel and engine components, but the need for locks will never go away. If it continues providing quality at a good price, Strattec is positioned for success. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.