By George Leong, B.Comm. Printed : February 7, 2023
GTX Inventory Is an Auto Tech Inventory for Contrarian Buyers
The COVID-19 pandemic led to vital microchip shortages globally, which had unfavourable impacts on automobile manufacturing. The provision state of affairs has vastly improved, however now there are issues about market demand.
Take the case of Garrett Movement Inc (NASDAQ:GTX). The corporate develops and manufactures turbocharging methods for international automakers. The methods are designed for broad utilization, together with in gasoline, diesel, pure gasoline, gas cell, and electrical automobiles (EVs). (Supply: “Our Story, ” Garrett Movement Inc, final accessed February 6, 2023.)
Garrett Movement previously operated as Honeywell Transportation Programs, previous to its spin-off from Honeywell Worldwide Inc (NASDAQ:HON) in 2018.
An issue that has crippled Garrett Movement inventory is the corporate’s vital web debt of $937.0 million. Garrett Movement Inc filed for Chapter 11 chapter safety in 2020, however debt danger continues to hang-out the corporate. Buyers’ issues in regards to the firm’s debt led GTX inventory to fall to $1.30 in September 2020.
As of this writing, Garrett Movement Inc has a market valuation of solely $514.0 million.
My view is that Garrett Movement inventory will rally if the corporate resolves its debt downside.
Chart courtesy of StockCharts.com
Garrett Movement Inc Must Deal With Its Debt
Garrett Movement has generated annual revenues on the $3.0-billion stage since 2017. The corporate delivered a report $3.6 billion in revenues in 2021, up by 19.7% in comparison with 2020. Due to this fact, revenues aren’t a problem for the corporate.
Garrett Movement Inc buying and selling at a mere 0.14 occasions its 2021 income factors to worth, however the firm’s overhanging debt danger is problematic.
Wanting forward, analysts estimate that Garrett Movement will report flat revenues of $3.7 billion for 2022 and observe that with income progress of seven.9% to $3.9 billion in 2023. (Supply: “Garrett Movement Inc. (GTX),” Yahoo! Finance, final accessed February 6, 2023.)
| Fiscal Yr | Revenues (Billions) | Progress |
| 2017 | $3.1 | N/A |
| 2018 | $3.4 | 9.0% |
| 2019 | $3.3 | -3.8% |
| 2020 | $3.0 | -6.6% |
| 2021 | $3.6 | 19.7% |
(Supply: “Garrett Movement Inc.” MarketWatch, final accessed February 6, 2023.)
On the plus aspect, Garrett Movement has produced constant earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) revenue.
| Fiscal Yr | EBITDA (Hundreds of thousands) | Progress |
| 2017 | $570.0 | N/A |
| 2018 | $601.0 | 5.4% |
| 2019 | $537.0 | -10.7% |
| 2020 | $375.0 | -30.2% |
| 2021 | $599.0 | 59.7% |
(Supply: MarketWatch, op. cit.)
On the underside line, Garrett Movement Inc delivered 4 straight years of constructive typically accepted accounting ideas (GAAP) diluted earnings per share (EPS).
My concern is that the corporate’s earnings have declined within the final 4 years. The $0.37 per diluted share in 2021 was Garrett Movement’s lowest GAAP diluted EPS since its loss in 2017, and that is regardless of report revenues that 12 months.
Garrett Movement Inc might want to enhance its profitability. Analysts estimate that its adjusted earnings declined to $1.16 per diluted share in 2022, in comparison with $1.56 in 2021. For 2023, the corporate is anticipated to report $1.13 per diluted share. (Supply: Yahoo! Finance, op. cit.)
| Fiscal Yr | GAAP Diluted EPS | Progress |
| 2017 | -$13.26 | N/A |
| 2018 | $16.21 | 222.2% |
| 2019 | $4.12 | -74.6% |
| 2020 | $1.05 | -74.5% |
| 2021 | $0.37 | -64.7% |
(Supply: MarketWatch, op. cit.)
Garrett Movement Inc was unable to generate constructive free money stream (FCF) in its final two reported years. Its worst 12 months by way of reported FCF was 2021.
| Fiscal Yr | FCF (Hundreds of thousands) | Progress |
| 2017 | -$32.0 | N/A |
| 2018 | $278.0 | 968.8% |
| 2019 | $140.0 | -49.6% |
| 2020 | -$55.0 | -139.3% |
| 2021 | -$382.0 | -594.6% |
(Supply: MarketWatch, op. cit.)
Analyst Take
Regardless of Garrett Movement Inc’s debt danger, its inventory has comparatively excessive institutional possession, with 243 institutional buyers holding a 78.7% stake in GTX inventory. (Supply: Yahoo! Finance, op. cit.)
Nonetheless, the market is clearly betting in opposition to inventory, as evidenced by the heavy brief place of 4.9 million shares, or 28.1% of the Garrett Movement inventory’s float.
If Garrett Movement Inc can keep afloat and enhance its debt state of affairs and profitability, GTX inventory ought to rise (and the brief sellers will cowl their positions).
