Growing up in the 1970’s, I learned a lot from my dad about stereo systems. He’s an engineer (and self-professed audiophile), and he spent hours explaining the virtues of various system designs. He also owned only one stereo brand: Harman Kardon. The company’s receivers and amplifiers delivered concert hall-quality sound. It was the “Mercedes-Benz of stereos,” as my dad liked to say.

Today, investors know the company as Harman International Industries, Inc. (NYSE: HAR). Though it remains a technology leader in the audio field, housing other brands such as JBL and Inifinity, Harman has also emerged as one of the leading providers of cutting-edge automotive dashboard systems, in a field known as “telematics.”

#-ad_banner-#And a quick glance at the future direction of telematics — and Harman’s role in that eco-system — tells you that this company may soon play as large a technology role in your life as more well-known consumer electronics firms like Apple, Inc. (Nasdaq: AAPL). It’s just that role will be buried behind the dashboard. Meanwhile, as I’ll explain in a moment, shares of Harman have been placed in the bargain bin, after a steady sell-off.

The Connected Car
If you bought a car in the past few years, it probably came with electronic goodies such as Bluetooth, USB connectivity, a satellite radio option, a navigation system and other bells and whistles. Your next car will have another feature: internet access. By placing wireless transceivers into these electronic systems, you’ll be able to do many more things in your car: Surf the web, stream any radio station, be alerted to the cheapest nearby gas station, incorporate traffic tie-ups into your GPS directions and, eventually, let your car do the driving as telematics use cameras and wireless data to get you from point A to point B, without ever touching the wheel.

Although Apple and Google want a piece of this action, Harman has emerged as the name to watch. “Harman is benefiting from connected car adoption as the category’s leader as evidenced by the company’s automotive backlog having grown to over $20 billion,” note analysts at Pacific Crest Securities. Conversion of that that backlog has already led to a string of stellar results. Harman has exceeded quarterly profit forecasts by an average of 10% over the past four quarters.

To be sure, Harman is not on the cusp of explosive growth. Instead, look for auto makers to only slowly embrace cutting-edge telematics. For example, only General Motors Co. (NYSE: GM) and Audi offer 4G wireless service via the dashboard thus far, and it will be several years before the whole industry upgrades to that wireless protocol.

The steady adoption is reflected by the fact that Harman’s sales are expected to grow at a low-teens pace in fiscal (June) 2015 and 2016, by which time annual sales should approach $7 billion. More importantly, management is carefully tweaking the income statement to squeeze out higher profits. According to S&P, “HAR has captured $450 million in costs savings across engineering, sourcing and manufacturing over the past several years, and we expect those efforts to be ongoing.” Steady sales growth, in tandem with an expansion in profit margins, is fueling sharp bottom-line growth.

Despite the positive top and bottom-line trends, investors have dumped this stock in tandem with the broader market. After all, it may have seemed like a risky stock to own in early September, trading for roughly 25 times trailing earnings.

Yet the pullback has pushed the stock into value territory. Shares now trade for around 12.5 times projected 2016 profits, a relative bargain in the context of 20%-to-30% earnings per share growth. Equally important, robust growth is likely to be maintained for quite some time, as the theme of the “connected car” is still in its infancy.

Risks to Consider: A sharp slowdown in global auto sales would crimp Harman’s growth prospects — and the share price.

Action to Take –> The steady market erosion has been impacting both good and bad companies. Harman is clearly one of the gems, with a track record of impressive growth and a technology platform that should help sustain its industry leadership. It’s tough to buy such companies when they are perennially making 52-week highs, but a lot easier to make that choice when they move back down toward levels that hold clear value. Harman is shaping up to be one of the best GARP (Growth at a Reasonable Price) stocks in the current market.

Analysts at Pacific Crest Securities have a $139 price target, representing more than 50% upside. My take: it will take several years before shares reach that price target, as this is a steady, but not explosive growth company.

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