Automotive parts supplier Strattec Security Corp. STRT appears to be trading cheap at the moment from a valuation standpoint. Its forward sales multiple of 0.33 is lower than the industry. The company also has a Value Score of A.

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Many investors favor the P/CF ratio because cash flow is harder to manipulate on the income statement, making it a reliable indicator of a company’s financial health. At 4.51, STRT’s P/CF is intriguingly below the industry’s 22.98, as well as its own 5-year average of 6.33.

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A key supplier of automotive access, security and user interface solutions, Strattec serves major OEMs like General Motors GM, Ford F and Stellantis STLA, which together account for more than 65% of its sales. The company is riding on strong demand for its products, new product launches and cost-cut efforts. Over the past six months, the stock has surged 27%, outperforming the industry, the sector and the S&P 500.

6-Month Price Performance Comparison

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But yesterday, STRT shares tumbled 6.7% amid a broader decline in the auto industry as U.S. President Trump’s tariffs on Canada and Mexico came into effect. Reports suggest that about a third of North American vehicle production in North America could be impacted by next week with 25% tariffs on imports from Mexico and Canada. Now, that’s a big deal for Strattec, which relies heavily on Mexican assembly operations and is closely tied to OEM demand.

So, is yesterday’s dip a buying opportunity? Or is it better to wait on the sidelines now despite the stock being on sale? Let’s find out.

STRT Q2 Results Solid

Strattec fiscal second-quarter 2025 earnings and revenues beat estimates. Adjusted earnings of 65 cents per share topped the Zacks Consensus Estimate of 28 cents and grew from 26 cents in the year-ago period. Revenues of $130 million surpassed the Zacks Consensus Estimate by 3.85% and rose 9.6% on a year-over-year basis. Adjusted EBITDA margins increased 180 basis points year over year to 6.1%.

Strong growth in power access and engineered latches drove results. Power Access sales surged 27% year over year, boosted by new programs, increased content value and higher volumes. Engineered Latches grew 20%, benefiting from similar factors. These gains more than offset the decline in the demand for keys and locksets.

Pricing Gains & Cost Optimization to Drive Strattec

Strattec is focusing on cost optimization and pricing improvements to drive profitability. The company recently eliminated a shift at its Milwaukee operations, leading to $1.2 million in annualized savings, with partial benefits expected to begin in the third quarter of fiscal 2025. Strattec is also contemplating the sale of its Milwaukee facility, leveraging excess capacity to further cut costs.

On the pricing front, the company has secured $8 million in new annualized pricing, which is set to boost results starting in the third quarter of fiscal 2025. These gains come from renegotiating contracts as they mature or extend, ensuring better terms with customers. The actual benefit will depend on customer demand and product shipment volumes.

By combining cost reductions and pricing improvements, Strattec aims to strengthen margins and enhance overall financial performance.

The Zacks Consensus Estimate for STRT’s fiscal 2025 and 2026 revenues implies an uptick of 2.6% and 3.4%, respectively. The consensus mark for EPS estimates has moved north in the past 30 days.

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How to Play STRT Stock Now?

Strattec is making strategic moves to strengthen its business, focusing on cost optimization, asset sales and manufacturing footprint adjustments. Additionally, its strong balance sheet—with a low long-term debt-to-capitalization ratio of 5.4% compared with the industry’s 21%—provides financial flexibility to navigate uncertainties.

However, the tariff situation remains a near-term risk. With 70% of its Mexican production being exported to the United States, higher import duties could weigh on margins. The company acknowledges this risk and is exploring ways to manage the impact. It is in discussions with customers and suppliers to assess the effects of tariffs and make necessary adjustments to mitigate disruptions. Strattec is also working to get more value for its products and innovations, which could help sustain margins even if tariffs increase. Also, by prioritizing cash management, operational efficiency and cost structure, the company aims to offset tariff-related expenses and maintain profitability.

Overall, while tariffs create short-term uncertainties, Strattec’s strong financial position, cost-cutting efforts and pricing gains suggest it can weather the storm. The stock looks undervalued with a solid growth outlook, making STRT a buy for investors looking for a value play in the auto parts sector.

Strattec currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Ford Motor Company (F) : Free Stock Analysis Report

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Strattec Security Corporation (STRT) : Free Stock Analysis Report

Stellantis N.V. (STLA) : Free Stock Analysis Report

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

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