Is Garrett Motion (GTX) Pricing Reflect Its Strong 1 Year Rally And Recent Pullback

• If you are wondering whether Garrett Motion's current share price reflects its underlying value, this breakdown will help you connect the recent market action with what the fundamentals are saying.
• The stock last closed at US$17.51, with a 1 year return of 120.6% and a 3 year return of 120.9%, alongside a 30 day return of a 14.0% decline and a 7 day return of a 2.5% decline that may hint at shifting risk and return expectations.
• Recent headlines around Garrett Motion have focused on its position within the Auto Components space and investor interest in the business following this strong 1 year share price performance. This background gives context to why some investors are now questioning whether the current price still offers an attractive entry point or reflects more cautious sentiment.
• Garrett Motion currently has a valuation check score of 6/6. The next sections will walk through the standard valuation approaches behind that score and will also point to a more complete way to think about valuation that will be covered at the end of the article.

Garrett Motion delivered 120.6% 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

The Discounted Cash Flow model estimates what a business could be worth by projecting its future cash flows and then discounting those back to today’s value.

For Garrett Motion, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections in $. The latest twelve months free cash flow is about $332.4 million. Analysts provide explicit forecasts for the next few years, and beyond that Simply Wall St extends those estimates, with projected free cash flow reaching about $682.4 million in 2035. Each of these future cash flows is discounted back to today using a required rate of return to arrive at an overall equity value per share.

On this basis, the DCF model estimates an intrinsic value of roughly US$47.48 per share, compared with the recent share price of US$17.51. This implies the stock trades at a 63.1% discount to the model’s estimate of fair value and points to a wide valuation gap.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Garrett Motion is undervalued by 63.1%. Track this in your watchlist or portfolio, or discover 62 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 profitable companies, the P/E ratio is a useful yardstick because it links what you pay for each share to the earnings that the business currently generates. It gives you a simple way to compare how the market values those earnings across different companies.

What counts as a “normal” P/E depends on how the market views a company’s growth potential and risk. Higher expected growth and lower perceived risk usually support a higher P/E, while lower growth expectations or higher risk tend to be reflected in a lower P/E.

Garrett Motion currently trades on a P/E of 10.73x, compared with the Auto Components industry average of about 18.39x and a peer group average of 18.96x. Simply Wall St’s Fair Ratio for Garrett Motion is 18.91x. The Fair Ratio is a proprietary estimate of what the P/E might be given factors such as earnings growth, profit margins, industry, market size and specific risks, which makes it more tailored than a simple comparison with peers or the sector.

Compared with this Fair Ratio, Garrett Motion’s current P/E of 10.73x sits well below 18.91x, which points to the shares trading on a lower multiple than the model suggests.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Garrett Motion Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St give you a clear story behind the numbers by linking your view on Garrett Motion’s future revenue, earnings and margins to a financial forecast and fair value. They update automatically when new news or earnings arrive, and let you see, for example, how one investor might focus on HVAC partnerships, buybacks and a US$22.20 fair value, while another places more weight on the risks around internal combustion engine exposure, margin pressure and analyst targets around US$15.00. You can then compare each Narrative’s Fair Value to today’s share price to help decide whether the stock looks attractive, fully priced or less appealing on their own terms.

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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