Dorman Products Is A Buy For Small-Cap Growth Investors Shares of Dorman Products (NASDAQ: DORM) are pulling back after reporting Q1 results not because results are weak but became the analysts had been expecting a little more.

By Thomas Hughes

This story originally appeared on MarketBeat contributor/ via MarketBeat

Dorman Products Pulls Back After Robust Quarter

Shares of Dorman Products (NASDAQ: DORM) are pulling back after reporting Q1 results not because results are weak but became the analysts had been expecting a little more. What this means for investors today is a chance to buy into the stock at a lower price and there are a few compelling reasons why. Not only is this stock well-positioned for the aftermarket auto parts industry, an industry that has been booming for several years now, but it is also well-positioned for growth over the long term. With virtually no debt to speak of and ample cash, this company has the flexibility to invest when and where it wants to and it wants to invest in growth.

Dormann Products Whiffs, Shares Down 3%

Dorman Products whiffed in relation to the analyst's expectations but you need to take that with a grain of salt. The consensus is based on a mere four analysts, one of whom hasn't issued a significant note in over a year. That aside, the $288 million in revenue is up 11.7% from last year and drive-by strong demand in all segments. Better yet, the 11.7% is 100% organic growth driven by that demand and expected to hold steady at/near that rate through the end of the fiscal year. On top of that, the 11.7% is on top of a tough comp of +5% in the YOY period. The results may have missed the consensus but there are still good results.

Kevin Olsen, Dorman Products' President and Chief Executive Officer, stated, "I am pleased to report a strong start to the fiscal year as we continue to execute on our strategic priorities. Our net sales performance was driven by robust demand, as we saw consistent order strength throughout the quarter. While we saw modest growth with "Do-It-For-Me' focused customers, we saw particular strength with "Do-It-Yourself' focused customers, consistent with trends across the automotive aftermarket."

Moving down the report the margins are equally impressive. The gross margin is up nearly 400% basis points on a GAAP basis due to cost-leveraging sales gains and internal efficiencies related to ongoing streamlining efforts. SG&A expenses also declined to help boost the operating margin and drive solid double-digit gains in earnings. The GAAP $1.02 is up 46% and the adjusted $1.04 is up 58%, both weak compared to the consensus, but once again good results reflective of a strong market.

The only downside is that rising costs related to freight, logistics, and wages are cutting into the bottom line and that pressure is not expected to stop. The company didn't offer any insight into future price increases to offset these costs but we think it's only a matter of time until they do. Regardless, the company is guiding revenue higher to a range of 9% to 12% which we think too low. Not only is business momentum building but the next three quarters are relatively easy comps and there is also the possibility of expansion or acquisition.

The Technical Outlook: Dorman Pulls Back From All-Time High

Shares of Dorman Products are pulling back from the fresh all-time highs and look like they could fall further. The pattern looks like a double-top reversal, the caveat is that this reversal may be from up to sideways and not up to down. If that is the case, we expect to see support buying begin near the $100 level and push price action to the side over the next few weeks or months. The caveat is that price action may fall below the $100 in which case we would still be looking for a range to form, albeit a larger one with a possible bottom near $96. In either case, we are bullish on this stock and waiting for the next buy-signal.

Dorman Products Is A Buy For Small-Cap Growth Investors

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