Not every stock we profile in the Investor Advisory Service succeeds. We’re very proud of our long-term track record, but our selection process does produce its share of mistakes. Let’s look back at Gentex Corporation, a company we introduced to our readers in the March 2012 issue of IAS.

The market started strong in 2012. January’s gain for the S&P 500 was 4.5%. If that statistic sounds awfully familiar, it might be because the market gained 5.2% in January this year. This is actually the third year in a row that the market has started strong. In 2011, January and February produced a two-month combined return of 5.9%. The 2011 rally eventually faded. 2012 plowed right ahead, scoring a 16% full-year return.

The economic picture was a mixed bag a year ago—I seem to write that same sentence every month. We watch economic indicators to try to judge whether the ground beneath the market is firm, but we always look to fundamentals first. In March 2012, our Investment Comments noted that the companies we follow had mainly shown good earnings growth in late 2011, which we thought put 2012’s early rally on a strong foundation.

Two of the three companies we profiled in the March issue outperformed the S&P 500 nicely during the ensuing year. Gentex Corp. (Ticker: GNTX) lagged behind, however. Gentex operates in an industry we rarely venture into, automobile components. New vehicle sales are too cyclical for our taste, and the industry doesn’t offer much underlying growth to make up for that cyclicality. Most of the auto-related companies we follow serve the secondary retail or automotive repair markets, which we think have better fundamentals than auto manufacturing.

Gentex specializes in side- and rear-view mirrors for new vehicles. We decided to take a chance on the company because of some pending legislation, the Kids Transportation Safety Act (KTSA). The KTSA would require all new vehicles sold in the U.S. to come equipped with rear camera displays. The motivation was preventing accidents caused by children running behind reversing cars. Gentex has a rear camera solution that could gain broad adoption if the KTSA were to pass.

The KTSA has not passed, however. At the time of our profile, the deadline for the Department of Transportation to issue final standards was February 29^th, 2012. That deadline soon got pushed out to the end of 2012. Meanwhile, profit margins at Gentex started slipping. Despite 16% sales growth in Q1, EPS increased just 10% in the first fiscal quarter. That weakness continued into Q2. Investors began to anticipate poor results. Shares briefly dipped below $15 in late July before mounting a brief rally. Q2 financial results showed EPS growth slowing to just 4%. The loss of four customers in the quarter compounded problems. Shares slumped again. The company’s poor earnings trajectory continued into Q3, when price cuts erased the sales growth that might have come from selling more units in the quarter. EPS declined 3%. The KTSA looked uncertain once again as its year-end deadline approached. 2013 still has not brought resolution, but GNTX shares have started to perk up somewhat.

At a recent price of $20.02, plus $0.52 in dividends, GNTX shares have dropped 20% since our profile. That’s not a huge disaster. Historically, the typical performance for any given stock in any given year has been about 20% up or down. Unfortunately, the S&P 500 has moved up about 16% during the same period. Compared to the broader market’s gains, GNTX has been a real slug.

Disclaimer: This company was selected for review in part because of its performance over the past year. Any outperformance relative to the broader market is not necessarily indicative of performance of the broader Investor Advisory Service.