Allison Transmission Holdings Inc (ALSN, Financial) recently experienced a daily loss of 10.4%, and a 3-month loss of 11.02%. Despite this downturn, the company reported robust Earnings Per Share (EPS) (EPS) of 6.74. This raises a critical question for value investors: Is the stock modestly undervalued? To answer this question, we delve into a comprehensive analysis of the company's valuation, financial strength, profitability, and growth.
Company Snapshot
Allison Transmission Holdings Inc is the world's largest manufacturer of fully automatic transmissions for commercial vehicles. The company's automatic transmissions offer better fuel and operator efficiency than manual and automated manual transmissions. Allison Transmission Holdings Inc serves several end markets, including on- and off-highway equipment and military vehicles. The company's on-highway business holds approximately 60% of the global market share.
At its current price of $51.25 per share, Allison Transmission Holdings Inc has a market cap of $4.60 billion. The GF Value, an estimation of fair value, is $57.56, suggesting that the stock is modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. 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. Considering these factors, Allison Transmission Holdings Inc appears to be modestly undervalued.
Financial Strength
Investing in companies with weak financial strength can result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before purchasing its shares. Allison Transmission Holdings Inc has a cash-to-debt ratio of 0.14, which ranks lower than 81.98% of 1232 companies in the Vehicles & Parts industry. Based on this, GuruFocus ranks Allison Transmission Holdings's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Allison Transmission Holdings Inc has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and an EPS of $6.74. Its operating margin is 29.37%, which ranks better than 98.66% of 1267 companies in the Vehicles & Parts industry. Overall, GuruFocus ranks the profitability of Allison Transmission Holdings at 10 out of 10, indicating strong profitability.
Growth is a critical factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Allison Transmission Holdings is 9.6%, which ranks better than 62.44% of 1206 companies in the Vehicles & Parts industry. However, the 3-year average EBITDA growth rate is 3.2%, which ranks worse than 57.45% of 1081 companies in the Vehicles & Parts industry.
ROIC Vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess its profitability. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Allison Transmission Holdings's ROIC is 17.45, and its WACC is 8.04.
Conclusion
In summary, the stock of Allison Transmission Holdings Inc (ALSN, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 57.45% of 1081 companies in the Vehicles & Parts industry. For comprehensive financial details about Allison Transmission Holdings, 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.
