If you have been watching Adient’s stock chart lately, you are probably asking yourself the big question: is now the right time to get in, get out, or just hold tight? Whether you are a seasoned investor or new to the auto parts space, Adient’s recent moves deserve a closer look. Over the past year, Adient’s share price has shown that volatility remains a factor. The stock is up 34.5% year to date, which stands out against a longer-term negative stretch over the last three years. However, a closer look reveals a 12.6% drop in the last week and a 6.1% dip over the past month. All this comes as the auto supply sector navigates shifting demand, picking up tailwinds from vehicle electrification trends and global supply chain adjustments. Still, recent market sentiment seems to hint that investors are recalibrating risk, perhaps seeing more potential upside than before, though not without a few speed bumps along the way.
Where does all this leave us when it comes to valuation? Based on six rigorous checks for undervaluation, Adient racks up a score of 5, indicating it is undervalued in five key areas. That is a compelling starting point, but to really understand what this means, we will need to break down these valuation approaches in detail. Plus, there is an additional way to consider value that could give you a clearer edge, which we will cover at the end of the article.
Why Adient is lagging behind its peers
The Discounted Cash Flow (DCF) model is a popular method for estimating a company’s intrinsic value by projecting its future cash flows and discounting them back to today’s dollars. This approach gives investors a present-day value of those future earnings.
For Adient, analysts estimate its Free Cash Flow (FCF) for the last twelve months at $259.5 Million. Looking ahead, projections suggest consistent growth, reaching $751 Million by 2030. It is important to note that analysts provide estimates for the next five years, while longer-term figures are extrapolated based on observable trends. The DCF model applied here uses a Two-Stage Free Cash Flow to Equity approach and includes a detailed projection for the next decade.
This analysis results in an estimated intrinsic value of $75.90 per share for Adient. Based on current market levels, the DCF suggests the stock is trading at a 70.3% discount to its intrinsic value, indicating substantial undervaluation at today’s prices.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Adient is undervalued by 70.3%. Track this in your watchlist or portfolio, or discover more undervalued stocks.
For companies like Adient that may not have consistent profitability, the Price-to-Sales (P/S) ratio is a widely used valuation tool. This metric allows investors to compare a company’s stock price to its revenues, which can be especially telling for cyclical industries or periods of fluctuating earnings.
Growth expectations and risk profile help shape what a fair P/S ratio should be. A company with strong future revenue growth and manageable risk typically justifies a higher multiple. More uncertainty, slim margins, or stagnating sales suggest a lower one makes sense.
Adient’s current P/S ratio is just 0.13x. Compared to the auto components industry average of 0.68x and the peer average of 0.52x, Adient is noticeably discounted. However, simple comparisons can miss important nuances, such as potential for margin expansion, growth outlook, risks, and market positioning.
That is where Simply Wall St’s proprietary “Fair Ratio” comes in. By taking into account factors like Adient’s growth prospects, profit margins, risk profile, industry, and market cap, the Fair Ratio sets a custom benchmark for the company. This goes beyond typical peer or industry average analysis and offers a more tailored perspective on value.
Adient’s Fair Ratio stands at 0.33x, compared to its actual P/S of 0.13x. With the Fair Ratio materially above the current multiple, this indicates the shares are undervalued based on this approach.
Result: UNDERVALUED
PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a more powerful and accessible approach for making investment decisions. A Narrative is your story behind the numbers, where you can connect your perspective on Adient’s business, industry trends, and future prospects to specific forecasts for revenue, earnings, margins, and ultimately, a fair value. Narratives bridge the gap between what is happening in the company and what those changes could mean financially, allowing users to justify their investment thesis with real data and projections.
Narratives are easy to use and available right now on Simply Wall St’s Community page, trusted by millions of investors. They help you decide when to buy, sell, or hold by directly comparing your calculated fair value to the current share price, making complex analysis accessible for everyone. Plus, Narratives automatically update as new information, like news or earnings, emerges, so your view stays current and relevant.
For example, one investor might create a Narrative projecting that Adient’s successful U.S. expansion and premium product innovation will drive a fair value of $64.00 per share, while another may take a more cautious view due to restructuring risk and assign a fair value of $17.00. Narratives make it easy to see these differing viewpoints transparently and dynamically, empowering you to invest smarter and with confidence.
Do you think there’s more to the story for Adient? Create your own Narrative to let the Community know!
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.
Companies discussed in this article include ADNT.
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