Strattec vs. Dorman Products: Which Stock is a Better Buy Right Now?

Strattec Security STRT and Dorman Products, Inc. DORM are U.S.-based auto parts manufacturers whose revenues depend on vehicle production and aftermarket demand, making them key suppliers in the broader automotive ecosystem.

Over the past year, STRT has risen 145.1%, outperforming DORM’s 37.7% growth. However, this outperformance alone doesn't necessarily put Strattec in a stronger position than Dorman Products. To build a solid investment case, it’s important to dive deeper into the underlying business fundamentals and long-term outlook of both companies.

One-Year Price Chart

STRT’s Tariff Resilience & DORM’s China Dependence

One of the most favorable points for Strattec currently is that more than 90% of what it sells in the United States qualifies for tariff-free or reduced-tariff rules. This shields Strattec, a focused automotive technology supplier, from additional expenses that other players might face if there is a rise in tariffs on imports, especially if the U.S. tightens trade rules again. Additionally, this provides the company with a cost advantage and increased stability.

STRT confirmed on its latest earnings call that only 6% of its total sales are expected to be affected by the latest tariffs. This further justifies the firm’s solid business model, which is less susceptible to major financial damage from tariffs.

Dorman Products, however, is significantly exposed to geopolitical and trade risks owing to its continued reliance on Chinese manufacturing. This year, the company is expected to source approximately 30% to 40% of its products from China, thereby leaving it vulnerable to unpredictable tariff shocks and supply chain disruptions. While Dorman has worked to spread out its supply chain since the 2018–2019 tariff issues and has a strategy to combat such challenges, today’s global political and trade situation is more unpredictable. Hence, it is probably harder for the company to manage.

Strattec’s Strong Balance Sheet

Strattec has a strong balance sheet with minimal exposure to debt capital. This is reflected in the total debt to capitalization of 5.25%, considerably lower than 27.8% of the composite stocks belonging to the industry. Thus, the company with significant financial flexibility will be able to invest in organic growth initiatives.

While DORM’s free cash flow remains healthy, a large share of it is being used to pay down debt and return capital to shareholders. With trade-related costs rising, this pattern may reduce near-term flexibility, especially when compared to STRT’s more conservative stance, which offers greater financial flexibility.

STRT or DORM: Which Stock Has an Edge Now?

STRT is trading at a 5.15x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is at a discount compared with Dorman Products’ 10.43x.

Thus, Strattec, sporting a Zacks Rank #1 (Strong Buy), is a cheaper stock than DORM, which has a Zacks Rank #2 (Buy). STRT is working on reducing its China exposure, making it a better buy considering the positive developments surrounding the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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