STRT

STRATTEC is a small, deep-cyclical Tier-1 automotive access/security supplier (locks, fobs, latches, power access) selling mostly to the three big North American OEMs. FY2025 was a genuine improvement year: revenue $565M (+5.1%), net income $18.7M (+14.5%), diluted EPS $4.58 (+12.5%), and gross profit up 29.2% on pricing actions, new program launches and a Milwaukee/Mexico restructuring that management pegs at ~$5M of annual cost savings. The standout is cash generation — operating cash flow leapt from $12.2M to $71.7M and the cash balance jumped 233% to $84.6M — against a fortress-light balance sheet (liabilities/equity just 0.65x, $222M equity). On price the stock looks cheap: P/E 17.0, P/S 0.6, and with only $7.16M of capex the implied free cash flow (~$64M) is a very high yield on the $324M market cap.

But the quality behind those numbers is modest and volatile. Net margin is 3.3%, operating margin 4.0% and ROE 8.4% — and the five-year record swings hard: net income went $22.5M → $7.0M → -$6.7M (a loss in FY2023) → $16.3M → $18.7M. This is a business whose earnings are hostage to OEM production volumes it does not control, with heavy customer concentration in three buyers. The FY2025 OCF surge is also flattered by working-capital release ('improved working capital velocity'), so it is not a clean run-rate.