Dorman Products, Inc. (NASDAQ:DORM)

CAPS Rating: 4 out of 5

The Company is a supplier of original equipment dealer, automotive replacement parts, and fasteners and service line products primarily for the automotive aftermarket, a market segment which we helped to establish.

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Member Avatar jbonefish (36.63) Submitted: 9/29/2014 5:28:38 PM : Outperform Start Price: $40.50 DORM Score: +28.32

Strong new car sales due to aggressive auto financing have me a bit spooked but I think that is priced in. Over the long term this boils down to 3 factors: First, although many people hate working on their car they hate paying dealership prices for repairs even more. The general idea of designing products to work in multiple makes/models is brilliant. Second, the simple fact is cars are lasting longer and the strength in the US economy is not going showing up in wages (e.g. discretionary spending). As people get used to that the idea of getting a new car every few years will be looked at as increasingly wasteful - unlike the past 2 decades where it was seen as a normal thing to do. Finally, moving into the heavy duty market opens new doors and that could lead to more incremental sales as well as some currently unseen adjacent markets. Strong financials, competitive position in a steady market ... feels like a winner long term.


Member Avatar TMFTycoon (62.41) Submitted: 3/22/2014 12:11:27 PM : Outperform Start Price: $60.44 DORM Score: -21.46

Aftermarket car parts are in higher demand as cars last longer and people work on their cars more to save money. Also, Dorman is gaining more access to what were proprietary parts, and it is able to sell them cheaper.


Member Avatar smith972 (77.43) Submitted: 12/9/2013 10:52:27 AM : Outperform Start Price: $51.78 DORM Score: -9.87

I still buy auto parts at Auto Zone and O'Reily's. It's kind of like Groceries, you need to go back and buy more.


Member Avatar TMFRedRaider (45.12) Submitted: 11/8/2013 10:37:50 AM : Outperform Start Price: $47.38 DORM Score: -3.76

This is a well-managed, founder-led company with high inside ownership. The niche product category should allow Dorman to maintain double-digit growth for the next five years. New markets could help push revenue growth closer to 15%. Increasing part complexity is a tailwind for Dorman as more and more products in the formerly dealer only category will hit the market.


Member Avatar TMFPencils (99.83) Submitted: 10/29/2013 4:59:44 PM : Outperform Start Price: $48.90 DORM Score: -6.67

I take notice any time I find a business with a quality and innovative product, a record of consistent earnings growth and cash flow production, along with an experienced management team. I think we have that with Dorman Products.

The Business: Dorman Products (DORM)

Dorman Products supplies automotive replacement parts, fasteners, and service line products primarily for the "automotive aftermarket" and mass merchandise markets. To give you a better idea of what this entails, Dorman's four largest customers are AutoZone, Advance Auto Parts, O’Reilly Auto Parts, and Genuine Parts Co. In other words, Dorman is exactly the sort of un-flashy business that will manage to fly under the market's radar. Dorman supplies approximately 133,000 automotive replacement parts to these four and numerous other automotive aftermarket retailers. The business was founded in 1978 and operates around the world, focused primarily in the United States, Canada, Europe, Mexico, Middle East, and Asia.

As of 2012, Dorman generates revenue from three customer groups:

- Automotive aftermarket retailers make up 49% of Dorman's revenue (generated from sales to AutoZone, Advance Auto Parts, O’Reilly Auto Parts, etc.).

- Automotive parts distributors make up 43% of Dorman's revenue (generated from sales to retail venues such as Carquest and NAPA)

- International sales and special markets contribute approximately 8% of Dorman's revenue. This comes from venues such as Walmart, other mass merchants, and special markets including salvage yards.

Dorman's Financials

Dorman is in excellent financial condition. The company carries $48.34 million of cash with no long-term debt. Between 2009 and 2012, Dorman's operating cash flow production nearly doubled from $27.58 million to $48.91 million. Dorman's profit margin has been under pressure this year, with today's third quarter results placing the profit margin at 12.86% (down slightly from 13%). However, year-over-year Dorman's gross margin increased to 39.2% from 38.2%. Increased investment in research and development contributed to Dorman's lower profit margin year-over-year.

Earnings and revenue continue to grow at a respectable rate; over the past five years the EPS has grown at an annual rate of 34.23% while sales have grown at an annual rate of 12.51%. In the most recent quarter, sales increased 16% and net income increased by roughly 12.5%. Year-to-date, however, EPS increased 19% compared to 2012.

Here are some brief key statistics for Dorman (keep in mind that not all of these numbers reflect the results of the 2013 third quarter):

Market Cap: 1.78B
Employees: 1,321
Qtrly Rev Growth (yoy): 13%
Revenue (ttm): 608.13M
Gross Margin (ttm): 39%
EBITDA (ttm): 123.76M
Operating Margin (ttm): 19%
Net Income (ttm): 73.42M
EPS (ttm): 2.03
P/E (ttm): 23.45
PEG (5 yr expected): 1.10
P/S (ttm): 2.93


Steven Berman, Chariman and CEO of Dorman, has been with the company as a director since 1978. Mathias Barton, who serves as President of the company, has been with Dorman since 1999. Matthew Kohnke, Dorman's CFO, joined the business in 2002. Having an experienced management team (all of whom are under the age of 53 years old), which has managed to successfully expand the company and consistently increase earnings and cash flow production, tremendously boosts my confidence in Dorman's continued growth and future success. 19% of Dorman's stock is owned by insider owners, with CEO Steven Berman owning nearly 3% of the company.

Dorman's management focuses on three foundational principles: profitable growth, risk mitigation, and a culture of contribution.

Competition and Risks

The automotive aftermarket turns out to be a very competitive industry. Dorman, while being one of the smaller competitors in the field, is in a much better financial situation than its larger counterparts. Federal-Mogul Corporation operates at a loss and a fraction of the margins that Dorman manages to consistently hold. Genuine Parts Company manages to turn a profit, but holds similarly low margins (less than half) compared to Dorman.

The industry itself is not exceptionally risky. Automotive parts and various automobile components will always be needed so long as automobiles are on the road, and I don't see automobiles losing traction anytime soon. The risk comes in based on how the products are delivered. I see Dorman's primary long-term risk surrounding the fact the company's four largest customers (AutoZone, Advance Auto Parts, O’Reilly Auto Parts, and Genuine Parts Co.) accounted for 57% of Dorman's revenue in 2012. This unquestionably puts Dorman in a vulnerable position should any of these four customers reduce or eliminate Dorman as a supplier.

Future Value Evaluation

I expect Dorman to continue growing earnings at an average rate of at least 17% per year for the foreseeable future. Dorman has an extensive portfolio of products which continues to expand with new additions, such as hybrid vehicle components. In addition, Dorman has increased research and development by 22% this year (compared to 2012) to $9.5 million. 20% of Dorman's 2012 revenue was generated by new products developed between 2010-12. 2700 new products were introduced in 2012 alone. This commitment to innovation, carried out by an experienced management team, is why I see 17% annual earnings growth as a reasonable expectation for at least the next five years. This might be considered a modest expectation given the fact that Darmon's earnings have grown to the tune of 30%+ annually for the past five years.

Given these assumptions, I believe we can expect Darmon to trade at a P/E of 20 in five years, given its superior margins and growth compared to its larger competitors. (The industry average P/E ratio hovers around 17.) With these numbers in mind, let's run a Future Value analysis (which is, I remind you, Current EPS*(Expected Growth Rate^# of years)*Expected Future P/E):

2.09 * (1.17^5)*20 = $91.64

This would result in a near double in value from Dorman over the next five years. If we boost that number to 20% earnings growth and a P/E of 25, the stock would more than double:

2.09*(1.20^5)*25 = $130.01

Looking Forward

Today Darmon is trading at a P/E of approximately 23.5. Considering Darmon's impressive track record of regular increases in earnings, margins, and cash flow production, coupled with an experienced management team, I am comfortable opening a position at these levels. Of course, I intend to be a long-term shareholder in Darmon, and will perhaps add to my position if Mr. Market chooses to offer a discount price for this quality business. I look forward to following Darmon going forward, and will do my best to share an updated analysis of the business as time allows.

David K


Member Avatar cengle777 (< 20) Submitted: 8/26/2013 6:10:30 PM : Outperform Start Price: $50.81 DORM Score: -19.69

EPS is good
PEG less than 1
Operating profit is greater than last year and the industry average
ROE has been greater than 15% over the past 3 years.
Growth rate in market value is greater than book value.


Member Avatar rknapton (61.38) Submitted: 8/6/2013 7:30:28 PM : Outperform Start Price: $48.61 DORM Score: -11.34

Long. Dorman products. Automotive replacement parts. Revs and earnings up nicely and consistently.


Member Avatar procraft (23.56) Submitted: 4/26/2012 12:09:34 PM : Outperform Start Price: $22.93 DORM Score: +86.28

lots of earning potential


Member Avatar CometKidd (42.77) Submitted: 3/30/2011 10:40:45 PM : Outperform Start Price: $19.64 DORM Score: +117.89

They are eating into the genuine parts business the dealer/OEM have lavished in so long. Parts being marketed thru NAPA and others also I imagine. I am kicking myself for not being in this stock some time back, they made GM squirm with the release of the plastic intake manifold for the Buick 3800 engine used in most W body models and all H & C body models, now they have remanufactured Transfer Control Modules.


Member Avatar zawl (32.56) Submitted: 4/25/2009 11:44:39 PM : Outperform Start Price: $5.04 DORM Score: +820.93

Price to book <1.


Member Avatar yourstruly336 (< 20) Submitted: 4/16/2009 7:49:01 PM : Outperform Start Price: $5.78 DORM Score: +689.29

Auto repair shops make bank ripping off consumers by overcharging retail for parts they get wholesale.


Member Avatar JohnnyiPhone (< 20) Submitted: 6/13/2008 7:53:22 AM : Outperform Start Price: $4.57 DORM Score: +1,016.52

Member of the "Mini-Cap Monsters."


Member Avatar matangolas (82.14) Submitted: 5/12/2008 6:29:32 AM : Outperform Start Price: $4.36 DORM Score: +1,076.06

Excellent management. Auto industry should improve as economy improves. Very few outstanding shares. Continues to have positive earnings even in this enviroment. As materials and energy costs come back into line company will benefit. I don't believe oil and commodities will continue to rise at the accelerated pace they recently have. Feels like complete speculation to me.


Member Avatar seedhom (71.35) Submitted: 10/10/2007 2:31:44 PM : Outperform Start Price: $6.82 DORM Score: +648.40

I like the numbers, I like the growth pattern. very little debt and rising profit.


Member Avatar FatDanS (73.69) Submitted: 10/10/2007 12:52:51 PM : Outperform Start Price: $6.78 DORM Score: +653.40

Company seems to be going in the right direction. Earning are going way up and they are just beginning a new marketing campaign that should boost sales. I like that no analysts have caught on to it yet so their is room for that initiation jump later on.


Member Avatar IgnorantFool77 (37.46) Submitted: 9/25/2007 8:57:31 AM : Outperform Start Price: $6.74 DORM Score: +653.27

Company provides extremely wide variety of aftermarket automotive parts. Seems to have a decent moat.

1. Low PE - 12.79

2. Wide gross and Operating margins within category - 34% and 10.59% respectively

3. ROE of 12.55%

4. Most importantly vert solid growth rate

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