The recent performance of Aptiv PLC (APTV, Financial) has been marked by a daily loss of -16.73% and a three-month loss of -30.78%. Despite these fluctuations, the company reported an Earnings Per Share (EPS) of 3.29. The question arises: is the stock significantly undervalued? This article presents a detailed valuation analysis to answer this question. Read on to understand the intrinsic value of Aptiv PLC (APTV).
Aptiv PLC (APTV, Financial): A Snapshot
Aptiv PLC's signal and power solutions segment provides components and systems constituting a vehicle's electrical system. This includes wiring assemblies, harnesses, connectors, electrical centers, and hybrid electrical systems. The advanced safety and user experience segment offers body controls, infotainment and connectivity systems, passive and active safety electronics, advanced driver-assist technologies, and displays. The company's largest customers include General Motors and Stellantis, contributing roughly 9% of 2022 revenue, followed by Ford and Volkswagen, both at 8%. North America and Europe represented approximately 37% and 31% of total 2022 revenue, respectively.
Currently, Aptiv PLC (APTV, Financial) trades at $71.68 per share, with a market cap of $20.30 billion. However, the GF Value estimates its fair value at $138 per share, suggesting that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. The stock price is expected to fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Given that Aptiv PLC (APTV, Financial) is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength of Aptiv PLC (APTV, Financial)
Before buying a stock, it is crucial to check the company's financial strength. Investing in companies with poor financial strength carries a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage can provide insights into the financial strength of a company. Aptiv PLC has a cash-to-debt ratio of 0.19, which is worse than 75.69% of 1234 companies in the Vehicles & Parts industry. The overall financial strength of Aptiv PLC is 6 out of 10, indicating fair financial strength.
Profitability and Growth of Aptiv PLC (APTV, Financial)
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Aptiv PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $19.30 billion and Earnings Per Share (EPS) of $3.29. Its operating margin is 9.16%, which ranks better than 74.68% of 1268 companies in the Vehicles & Parts industry. Overall, GuruFocus ranks the profitability of Aptiv PLC at 8 out of 10, indicating strong profitability.
Growth is a critical factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Aptiv PLC is5%, which ranks worse than 53.27% of 1207 companies in the Vehicles & Parts industry. The 3-year average EBITDA growth rate is -2.3%, which ranks worse than 67.19% of 1082 companies in the Vehicles & Parts industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Aptiv PLC's return on invested capital is 11, and its cost of capital is 11.11.
Conclusion
In conclusion, the stock of Aptiv PLC (APTV, Financial) shows every sign of being significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 67.19% of 1082 companies in the Vehicles & Parts industry. To learn more about Aptiv PLC stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
