Littelfuse's Valuation May Seem Demanding, But The Business Is Appealing

A lot of investors prize businesses with strong share in COGS/opex-oriented businesses with barriers to entry. Littelfuse (NASDAQ:LFUS) certainly fits the bill, as circuit protection products like fuses and suppressors and sensors tend to sell for low individual ASPs, but they are ubiquitous and customers prize reliability (you don't want a TV or CT scanner failing because of a $1 fuse). What's more, auto OEMs are adding more and more sensors and fuses to new models and the migration towards more electric power (including 48v architectures and all-electrics) should offer more content growth opportunities for Littelfuse.

I've made my peace with the fact that companies like Littelfuse and Sensata (NYSE:ST) (which aren't apples-to-apples comps) aren't going to often look cheap, but the strong performance of the shares (up about 35% over the past year, and up about 70% over the past three years) and the high multiples do at least lead me to pause. That said, the low double-digit long-term FCF growth implied by the current valuation doesn't strike me as ridiculous. I'd wait for a better entry point, but that could be a long and frustrating wait and stronger than expected growth in the auto business could support even higher multiples.

Read the full article here:
Littelfuse's Valuation May Seem Demanding, But The Business Is Appealing