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Wondering if Goodyear Tire & Rubber might be undervalued, or if there’s more to the story beneath the surface? You’re not alone. Evaluating this long-running stock is on the minds of many investors right now.
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After a difficult year, Goodyear’s stock is down 2.5% this week, off by 10.8% over the past month, and has posted a -21.3% return year-to-date, which has definitely shaken up risk perceptions.
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Recent headlines have zoomed in on Goodyear’s ongoing strategic review, including asset sales and restructuring moves. These developments have caught the market’s attention and may help explain some of the dramatic price swings in recent months.
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When it comes to pure valuation, Goodyear scores a strong 5 out of 6 on our value checks, pointing to several areas where it may be trading below its fair value. We are about to dig into the different approaches to valuing this tire giant, and at the end, reveal a smarter way to use valuation scores when making investing decisions.
Find out why Goodyear Tire & Rubber’s -15.1% return over the last year is lagging behind its peers.
A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and discounting them back to their present value. The goal is to determine what the business is truly worth today based on its expected ability to generate cash in the years ahead.
For Goodyear Tire & Rubber, the current Free Cash Flow stands at -$533 million, a challenging starting point. However, analysts anticipate a significant turnaround and project Free Cash Flow to reach $540 million by 2029. These forecasts use multiple analyst estimates for the next five years and rely on Simply Wall St’s extrapolations beyond that. Each future cash flow is discounted to present-day values using a two-stage Free Cash Flow to Equity model.
Based on this model, Goodyear’s intrinsic fair value is estimated at $19.07 per share. With the stock currently trading at a 63.9% discount to this modeled value, the DCF analysis suggests Goodyear is significantly undervalued compared to its fundamentals.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Goodyear Tire & Rubber is undervalued by 63.9%. Track this in your watchlist or portfolio, or discover 839 more undervalued stocks based on cash flows.
For established, profitable companies like Goodyear Tire & Rubber, the price-to-earnings (PE) ratio is a time-tested metric for gauging valuation. The PE ratio captures how much investors are willing to pay for each dollar of earnings, which is especially relevant when the company consistently generates profits.
However, what counts as a “normal” PE can vary significantly depending on expectations for future earnings growth and the company’s perceived risks. Fast-growing or lower-risk companies tend to trade at higher PEs, while slower-growing or riskier firms generally warrant lower PEs.
Goodyear’s current PE ratio stands at just 4.6x, which is remarkably low compared to the Auto Components industry average of 19.1x and a broad peer average of 20.9x. At first glance, this deep discount might seem like a great deal, but context is key.
That is where the Simply Wall St “Fair Ratio” comes in. At 10.5x, it reflects a balanced view of what Goodyear’s PE should be after accounting for the company’s specific earnings growth prospects, profit margins, size, industry factors, and risk profile. Unlike simple peer or industry comparisons, the Fair Ratio looks beneath the surface to tailor the multiple for Goodyear’s unique situation.
With Goodyear’s actual PE of 4.6x well below its Fair Ratio of 10.5x, the stock appears significantly undervalued based on earnings potential.
Result: UNDERVALUED
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1411 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is essentially your story about a company, connecting the numbers such as your own fair value, and your assumptions about future revenue, margins, and earnings to your personal investment perspective. Narratives go beyond static metrics by combining a company’s underlying business story with a tailored financial forecast, generating a fair value that fits your outlook.
This approach is available directly within Simply Wall St’s Community page, empowering millions of investors to make decisions based on their unique views. Narratives make it easy to know when to buy or sell by comparing your calculated Fair Value to the latest share price, and they update automatically when new earnings, news or data come out.
For example, one investor might believe Goodyear’s innovations and successful restructuring will drive significant long-term gains, justifying a Narrative with a $15.00 fair value, while another may focus on margin pressure and competitive threats, leading them to set a fair value closer to $9.00.
Do you think there’s more to the story for Goodyear Tire & Rubber? 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.
Companies discussed in this article include GT.
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