Investment Research report

Dorman Products Inc.

NASDAQ:
dorm
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Research Overview

INDEX:
S&P 500
Sector:
Consumer Discretionary
Position:
Short
Date:
Aug 16, 2017

After conducting a forensic financial and accounting review, Spruce Point believes Dorman Products Inc. (NASDAQ: DORM), a manufacturer of aftermarket automotive products, is a distributor stuck between a rock and a hard place as it sells both through Amazon, which is seeking to grow further into online auto parts distribution, and through the biggest brick and mortar retailers (Adv. Auto Parts / O’Reilly / AutoZone), which account for a majority of its sales, and is struggling with slower growth and margin pressure. Based on our investigation, we forecast 30% to 50% downside risk. 

The report highlights several key concerns with the company, including:

  • Data shows that revenue growth is slowing and has a history of being overstated
  • Evidence of hidden margin benefits from aggressive capitalization and FX tailwinds coming to an end
  • We believe that product innovation is slowing as well as prices are deflating
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