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If you are wondering whether Aptiv’s current share price gives you fair value or a margin of safety, this article will walk through what the numbers actually say.
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Over the past year the stock is up 20.6%, although returns over 7 days, 30 days and year to date are modestly negative at 2.7%, 0.6% and 2.5% declines respectively, and the 3 year and 5 year returns of 30.9% and 42.8% declines show a mixed longer term picture.
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Recent coverage of Aptiv has focused on its role in the auto sector and how sentiment toward the group has shifted, which helps frame these share price moves. Market commentary has also highlighted how investors are reassessing companies connected to vehicle technology and components, and that context is important when you look at where Aptiv trades today.
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Aptiv currently scores 3 out of 6 on our valuation checks, and next we will walk through what that means using several common valuation methods, before finishing with a more holistic way to think about the stock’s value.
A Discounted Cash Flow, or DCF, model takes the cash Aptiv is expected to generate in the future and discounts those cash flows back to today to estimate what the business could be worth now.
For Aptiv, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $1.62b. Analysts provide explicit forecasts for several years, and Simply Wall St then extrapolates those out further. By 2035, the projection used in this model is free cash flow of around $2.35b, all still in $ terms.
After discounting each of those yearly cash flows back to today and factoring in a terminal value, the DCF model arrives at an estimated intrinsic value of $141.48 per share. Compared with the current share price, this implies an intrinsic discount of 45.9%, which points to Aptiv trading at a sizeable discount to this cash flow based estimate.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Aptiv is undervalued by 45.9%. Track this in your watchlist or portfolio, or discover 871 more undervalued stocks based on cash flows.
For a profitable business like Aptiv, the P/E ratio is a useful way to relate what you pay for each share to the earnings the company is currently generating. In general, higher expected growth and lower perceived risk can justify a higher P/E, while lower growth or higher risk usually call for a lower, more conservative multiple.
Aptiv is trading on a P/E of 56.0x, compared with the Auto Components industry average of 24.5x and a peer group average of 28.9x. Simply Wall St also calculates a proprietary “Fair Ratio” for Aptiv of 32.4x, which is the P/E level implied by factors such as its earnings growth profile, industry, profit margins, market cap and risk characteristics.
This Fair Ratio is more tailored than a simple peer or industry comparison because it ties the multiple to company specific fundamentals rather than assuming that all firms in the same sector deserve similar pricing. Against this Fair Ratio of 32.4x, Aptiv’s current P/E of 56.0x screens as meaningfully higher. This points to the shares looking expensive on this earnings based yardstick.
Result: OVERVALUED
P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1427 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, which are simply the story you believe about a company, turned into numbers like future revenue, earnings, margins and a fair value estimate. On Simply Wall St’s Community page, you can pick or build a Narrative for Aptiv that links your view of its business, for example its position in auto technology and components, directly to a forecast and then to a fair value that you can compare with the current share price to decide whether it looks attractive or not. Narratives sit on top of the same kind of models you have just seen, but they are easy to adjust, react quickly when fresh news or earnings are added to the platform, and show you on one screen how your assumptions stack up against what millions of other investors are using. For Aptiv, one investor might select a Narrative with a higher fair value based on stronger long term expectations, while another might choose a more cautious Narrative with a lower fair value if they see more risk in the story.
Do you think there’s more to the story for Aptiv? 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 APTV.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com