Gentherm Inc: One Of The Few Undervalued Stocks In Today's Market

Wall Street normally gives the price to a company that it actually deserves (Efficient Market Theory) but at times, due to some event not related to a company's business, it gives an irrational price to the stock. Sometimes this irrationality leads to an overvaluation of the company and at other times it causes a company to become undervalued. Gentherm (THRM) falls in the later category.

Company Introduction

Gentherm is a leader in manufacturing technology which designs, develops and manufactures heating and cooling systems for diverse global markets. Their products are based on proprietary thermal technology called TED (Thermal Electronic Device). Gentherm's products can be found on the vehicles of nearly all major automotive manufacturers, spanning all major automotive markets. The company's main product is Climate Control Seats (CCS), which was once available only for luxury cars but lately more mid-segment cars are offering it as an upgrade feature. Some of the other products based on TED are as follows:

CCS products are currently offered as an optional or standard feature on automobiles produced by Ford Motor Company, General Motors, Fiat Group, Toyota Motor Corporation, Nissan Motor Corporation, Tata Motors Limited and Hyundai Motor Company.

As of December 31, 2013, Gentherm held 432 issued patents, of which 177 were U.S. patents and 255 were non-U.S. patents. As of December 31, 2013, Gentherm had 317 patents applications pending at the authorities, 41 of which were new U.S. applications and 45 of which were new non-U.S. applications filed in 2013.

Gentherm's Moat

Most of my article is focused around CCS because it's the major revenue driver for Gentherm. As I have listed above, Gentherm has some of the top car manufacturers as it's clients. I strongly believe that Gentherm was able to achieve such a strong client base because of their great product, and since they use proprietary technology to manufacture CCS, its difficult for competitors to provide exactly the same product. Also, the following extract from Gentherm's report clearly shows how lengthy the process of approving a new CCS manufacturer can be for automobile companies.

"If a manufacturer wishes to integrate our CCS product into a seat, it provides us with automotive seats to be modified so that we can install a unit in a prototype. The seat is then returned to the manufacturer for evaluation and testing. If a manufacturer accepts our CCS product, a program can then be launched for a particular model on a production basis, but it normally takes two to three years from the time a manufacturer decides to include our CCS product in a vehicle model to actual volume production for that vehicle."

Because of their excellent Climate Control Seats, Gentherm is able to market some of its other products that are based on the similar technology as CCS.

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Gentherm Inc: One Of The Few Undervalued Stocks In Today's Market