Strattec Security Corporation (STRT Quick QuoteSTRT - Free Report) , a leading global company that manufactures high-tech locking and access systems for cars, is trading at a 5.02x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is at a discount compared with the broader industry average of 18.34x.

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Compared to the industry, most of the time in the past five years, STRT has been trading at a discount. The billion-dollar question is: Should investors bet on the undervalued stock right away? Before coming to a conclusion, let’s delve into STRT’s fundamentals and overall business environment.

Strattec Security's Restructuring Will Begin to Show Results

Strattec Security is retaining a larger share of the revenue it generates from each sale as profit. One of the most notable financial successes for STRT in the last reported quarter was the substantial improvement in profit margins, specifically as the gross margin surged 560 basis points year over year, reaching almost 16%. The factors that contributed to these positive developments include the company’s initiatives to strategically raise prices on some of its products while enhancing its operations with favorable currency exchange rates.

What is more encouraging is the rise in STRT’s adjusted EBITDA margin, which jumped from 4.4% to almost 9% year over year. With EBITDA representing the core health of the company’s business, like building and selling automotive security products, it is becoming more profitable over time.

Importantly, STRT has witnessed this growth while investing in hiring talent and operational restructuring in Mexico and Milwaukee. This initiative to increase its profits while investing in growth projects reflects STRT’s smart financial management. It is to be noted that Strattec Security expects that the changes it made to improve efficiency, especially in Mexico and Milwaukee, will start showing their full benefits in the first quarter of fiscal 2026.

STRT’s Cautious Capital Allocation to Fuel Growth

Strattec Security is focusing on disciplined capital allocation, which means that it is being selective in its spending, especially during uncertain times such as the U.S.-China tariff war and the potential production slowdown. Instead of pursuing risky investments, the company is following a strategy of disciplined capital investments that will create long-term value for the shareholders and will benefit core operations.

For fiscal 2025, Strattec Security aims to invest $7.5 million in capital expenditure, targeting three key areas — IT infrastructure, productivity enhancements and product development. As STRT upgrades its IT systems, it will gain the ability to enhance data management, boost automation and streamline internal operations. While modernizing equipment, the company will have the capability to increase manufacturing efficiency and reduce costs. Moreover, investment in new automotive access and security solutions enables the company to stay competitive and expand its customer base.

The investment roadmap shows STRT’s overall transformation strategy. With the investment, the company will improve its operational efficiency and offer more advanced products. This will, in turn, strengthen its margins, preserve financial flexibility and maintain a solid cash position. Thus, Strattec Security will be capable of growing in the rapidly changing market while managing risks effectively.

Similar to Strattec Security, both American Axle & Manufacturing Holdings, Inc. (AXL Quick QuoteAXL - Free Report) and BorgWarner (BWA Quick QuoteBWA - Free Report) are actively pursuing disciplined capital allocation strategies, as evidenced by their latest earnings calls.

For AXL, disciplined capital allocation is evident through its strategic exits from non-core joint ventures in China and the sale of its commercial vehicle axle business in India, both aimed at sharpening the focus on core operations. These moves, alongside American Axle’s upcoming combination with Dowlais, are designed to generate a strong free cash flow while deleveraging the balance sheet. This supports AXL’s more balanced capital allocation policy.

BorgWarner, meanwhile, has recently taken decisive steps to optimize its portfolio by exiting the EV charging business and consolidating battery operations, which are expected to yield $20 million in annual savings and eliminate $30 million in losses. These actions demonstrate a strong emphasis on return on invested capital (ROIC), with BorgWarner maintaining a 15% ROIC threshold for its portfolio decisions.

Should Investors Bet on STRT Now?

STRT also has a strong balance sheet, as reflected in the company’s total debt to capitalization of 5.25%, significantly lower than the industry’s 27.8%. This gives STRT financial flexibility to make smart decisions, invest in the business, or handle unexpected challenges, like changes in tariffs or customer orders.

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All the positive developments are reflected in the stock’s price chart. Year to date (YTD), STRT jumped 45.1%, outpacing the 0.3% improvement of the industry’s composite stocks.

YTD Price Chart

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Thus, with restructuring initiatives, declined capital allocation and a strong balance sheet, STRT’s business outlook looks promising. So, it is ideal for investors to bet on the stock right away, especially when it is undervalued. Currently, Strattec Security sports a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.