What a time it’s been for Garrett Motion. In the past six months alone, the company’s stock price has increased by a massive 46.7%, reaching $25.64 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
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Why Does Garrett Motion Spark Debate?
A key player in the transition to cleaner vehicles, Garrett Motion (NYSE: GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.
Two Things to Like:
1. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Garrett Motion’s margin expanded by 6.8 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Garrett Motion’s free cash flow margin for the trailing 12 months was 11.1%.
2. New Investments Bear Fruit as ROIC Jumps
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Garrett Motion’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
One Reason to Be Careful:
Long-Term Revenue Growth Flatter Than a Pancake
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Garrett Motion struggled to consistently increase demand as its $3.75 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result, but there are still things to like about Garrett Motion.
Final Judgment
Garrett Motion’s positive characteristics outweigh the negatives, and with the recent rally, the stock trades at 8.7× forward EV-to-EBITDA (or $25.64 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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