Is Garrett Motion (GTX) Still Attractive After 108% One Year Share Price Surge?

• If you are wondering whether Garrett Motion's share price still offers value after a strong run, you are not alone. This article is designed to help you make sense of that question.
• The stock closed at US$18.87, with a 7.8% decline over the last 7 days, a 3.5% gain over 30 days, an 8.6% gain year to date, a 107.9% return over 1 year and a 153.4% return over 3 years. These figures raise fair questions about how much of its potential is already reflected in the price.
• Recent interest in Garrett Motion has been supported by ongoing attention on auto and mobility suppliers as investors reassess where value might sit in the vehicle technology supply chain. This broader context helps explain why the share price has shown both shorter term swings and stronger multi year returns.
• Our valuation checks give Garrett Motion a score of 5/6. Next we will look at how different valuation approaches line up with that score, before finishing with a way to interpret valuation that goes beyond any single model.

Garrett Motion delivered 107.9% returns over the last year. See how this stacks up to the rest of the Auto Components industry.

Approach 1: Garrett Motion Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company might be worth by projecting its future cash flows and then discounting them back to today, so you can compare that value to the current share price.

For Garrett Motion, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow is about $332.4 million. Simply Wall St uses analyst estimates for the next few years and then extends those projections further out, arriving at a forecast Free Cash Flow of $681.96 million in 2035. All of these cash flows are in US$.

When these projected cash flows are discounted back to today, the model suggests an estimated intrinsic value of about $47.50 per share. Compared to the recent share price of US$18.87, this implies the stock is about 60.3% below that intrinsic value, which indicates Garrett Motion is trading at a substantial discount in this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Garrett Motion is undervalued by 60.3%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Garrett Motion.

Approach 2: Garrett Motion Price vs Earnings

For a profitable company like Garrett Motion, the P/E ratio is a useful yardstick because it directly links what you pay per share to the earnings the business is generating today.

In simple terms, higher growth expectations and lower perceived risk tend to justify a higher P/E, while lower growth expectations or higher risk usually fit with a lower P/E. So, a "normal" P/E is not one fixed number; it depends on what the market expects from the business and how predictable those earnings appear to be.

Garrett Motion currently trades on a P/E of 11.56x. This sits below both the Auto Components industry average P/E of 19.38x and the peer group average of 20.80x. Simply Wall St also calculates a proprietary “Fair Ratio” of 19.14x for Garrett Motion, which reflects factors such as its earnings profile, industry, profit margins, market cap and specific risks.

This Fair Ratio aims to be more tailored than a simple peer or industry comparison because it tries to match the multiple to the company’s own characteristics, rather than assuming all firms in the sector deserve the same P/E.

Comparing the Fair Ratio of 19.14x with the actual P/E of 11.56x suggests Garrett Motion’s shares trade below that Fair Ratio.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Garrett Motion Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives on the Community page, where you and other investors connect Garrett Motion’s story to specific revenue, earnings and margin assumptions, link those forecasts to a fair value, and then compare that fair value to the current price. The platform then updates your Narrative automatically when new earnings or news arrives. For example, one investor might build a Narrative around the current fair value of US$22.20, while another uses the analyst consensus price target of US$15.00, giving you two clear reference points for deciding how the current market price fits your own view.

Do you think there's more to the story for Garrett Motion? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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