If you’re looking at Aptiv and wondering whether it’s time to make a move, you’re not alone. This stock has been on quite a ride lately, giving investors plenty to think about. Over the last week, Aptiv edged up by 2.6%, defying some of the broader market volatility, while over the past year, the stock has also delivered a very respectable 15.3% gain. Even so, the longer-term view tells a more complex story, with a five-year performance still in negative territory at -17.5%. This mix of short-term momentum and challenging long-term returns has many people asking if the growth potential is finally coming back into focus, or if risk perceptions are changing yet again.
When you dig into how the market values Aptiv right now, there’s some interesting info worth considering. Based on a set of six widely-followed valuation checks, Aptiv passes five of them, giving it a valuation score of 5. That stacks up as a strong signal that the company may be undervalued in most respects, even if some questions remain.
So, how exactly do those valuation measures add up? Let’s break down the different approaches analysts use to assess whether Aptiv’s share price makes sense. It is also useful to explore a deeper way to think about valuation that goes beyond the usual metrics.
Why Aptiv is lagging behind its peers
The Discounted Cash Flow (DCF) model is a popular method used to value companies by estimating all future cash flows a business will generate, and then discounting those amounts back to their current value. This approach takes into account both what Aptiv is generating now in Free Cash Flow (FCF) and what analysts expect to see in the future, adjusted for the time value of money.
For Aptiv, the most recent reported Free Cash Flow is $1.51 Billion. Analyst estimates project that Aptiv’s annual FCF will steadily rise, hitting $2.07 Billion by 2028. Further projections, extrapolated to 2035 using consensus growth assumptions, suggest FCF could reach $3.11 Billion. It is worth noting that accuracy generally tapers off the further out projections go.
Based on these calculations, the DCF model arrives at an estimated intrinsic value of $191.96 per share. This figure is currently about 56.9% higher than Aptiv’s actual share price, implying a significant discount and suggesting the stock is materially undervalued on this measure.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Aptiv is undervalued by 56.9%. Track this in your watchlist or portfolio, or discover more undervalued stocks.
The Price-to-Earnings (PE) ratio is a favored valuation tool for companies like Aptiv that are generating consistent profits. It gives investors a simple way to compare what they are paying for each dollar of a company’s earnings, making it especially relevant for evaluating established and profitable businesses.
A “normal” or “fair” PE ratio can vary widely, influenced by expectations for earnings growth, profit reliability, and risk. High-growth, low-risk companies often command higher PE multiples, while firms with stagnating earnings or greater uncertainty typically trade at a lower PE.
Currently, Aptiv trades on a PE ratio of 17.8x. This matches the Auto Components industry average of 17.8x, but is well below the peer average of 28x. This suggests the market is valuing Aptiv’s earnings more conservatively than its closest rivals.
Simply Wall St’s “Fair Ratio” comes into play by synthesizing Aptiv’s unique situation. This considers not only industry averages and profit margins, but also incorporates realistic earnings growth forecasts, market cap, and company-specific risks. For Aptiv, the Fair Ratio is calculated at 20.8x, providing a more tailored benchmark than generic peer or sector comparisons.
With a Fair Ratio of 20.8x and Aptiv’s current PE at 17.8x, the stock appears to be trading at a notable discount. This suggests the market may be underestimating Aptiv’s potential upside given its growth and profitability profile.
Result: UNDERVALUED
PE 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 Narrative is the story you believe about a company, connecting your outlook about its future revenue, earnings, and profit margins to a financial forecast, and then to your own fair value estimate. Rather than relying solely on traditional ratios, Narratives let you personalize the numbers and express your perspective, making your investment decisions more dynamic and tailored.
Narratives are a core feature on Simply Wall St’s Community page, where millions of investors easily track, share, and update their views based on changing data or breaking news. By setting your own fair value and assumptions, you can quickly see if the current share price looks attractive or expensive compared to your story, helping you decide when to buy or sell. Narratives are automatically updated in real time whenever new earnings reports or market developments emerge, keeping your analysis relevant and timely.
For example, with Aptiv, one investor might build a bullish Narrative, projecting strong recurring software revenues, robust growth in emerging markets, and margin expansion, arriving at a fair value closer to the high analyst target of $97. A more cautious investor may highlight macroeconomic risks and margin headwinds in China and set Aptiv’s fair value closer to $60, the lowest analyst target.
Do you think there’s more to the story for Aptiv? 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 APTV.
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