Investidea: Goodyear, because it's a good year

Today we have a speculative idea: take shares of american tire manufacturer Goodyear Tire & Rubber (NASDAQ: GT), to capitalize on the expected growth of orders from this company.

Growth potential and validity: 14% behind 15 Months; 8% per annum during 10 years.

Why stocks can go up: there is a demand for the company's products, and she showed herself to be well done in difficult circumstances.

How do we act: take now 22,74 $.

When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

No guarantees

Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.

And what is there with the author's forecasts

Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.

So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.

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Investment editorial office

What the company makes money on

Company name - English. "Goodyear tires and rubber," explains her activities.: It is engaged in the production and sale of tires for a variety of vehicles..

The company offers its customers the following types of goods and services:

1. Tires for consumer, commercial and agricultural machinery, as well as SUVs.
2. Other tires and related services are tires for special customers, such as aviation, racing cars and motorcycles, as well as repair of old tires and other services.
3. Retail & Services, related to sales, - Essentially, these services, which the company provides to its customers, buying her tires.
4. Chemical products are the company's sales of synthetic rubber and other chemical products.
5. Non-core activities are franchisee fees and sales of tire products.

According to the company's annual report, its revenue is divided into regional segments. 2020 the year was very difficult. Low margin or unprofitability of some segments in 2020 does not quite objectively show the situation in the company, therefore, here we have indicated the data for 2018 and 2019.

Of America — 53,2%. Segment operating margin — 0,1% from its proceeds. In 2018, the segment's operating margin was 8%, in 2019 — 6,9%. Sales of the segment look like this:

1. Tires — 78,37%.
2. Other tyres and related services – 8,37%.
3. Retail services and those, what are related to sales, — 8,2%.
4. Chemical products — 4,83%.
5. Non-core activities — 0,23%.

Europe, Middle East and Africa — 32,6%. Segment operating margin – minus 1,8%. In 2018, the segment's operating margin was 7,1%, in 2019 — 4,3%. The sales structure of the segment is such:

1. Tires — 89,82%.
2. Other tyres and related services – 7,68%.
3. Retail services and those, what are related to sales, — 2,46%.
4. Non-core activities — 0,04%.

Asian-Pacific area — 14,2%. Segment operating margin — 2,8%. In 2018, the segment's operating margin was 11,6%, in 2019 — 9,1%. The revenue of the segment is divided as follows:

1. Tires — 91,11%.
2. Other tyres and related services – 5,61%.
3. Retail services and those, what are related to sales, — 3,15%.
4. Non-core activities — 0,13%.

Company revenue by country:

1. USA - 44,02%.
2. Germany - 5,72%.
3. Other, unnamed countries - 50,26%.

Arguments in favor of the company

Medal for Braverity. Recently, the company reported for 3 neighborhood 2021, and this report was good: there was strong growth both in revenue, as well as profit. AND, which is much more important, the company achieved this result in the face of logistical problems, increase in the cost of labor and raw materials.

As logistical problems have now eased, and U.S. auto production suddenly rose in October., despite the severe crisis of semiconductor availability, you can expect "continuation of the banquet". Think, This quarter at Goodyear will be even better. After all, mobility indicators are growing around the world., which means, that there will be a need for new tires.

The positive here will be an increase in demand., among other things, on the part of professionals from the field of agriculture: rising prices for agricultural products have made investments in new machinery more profitable for farmers. So here, too, you can hope for the growth of the company's revenues..

Cheap. Company P / S about 0,36, and its capitalization is 6.4 billion dollars. P / E she's not very small., but not very arrogant — 21,61. Think, As a result, there is a high probability, that the company will buy some manufacturer of cars and equipment.

What can get in the way

“We are talking about three-digit sums!» The company is a defendant in a number of lawsuits as a harmful production, and about the fraud of the management with securities. All in all, these cases have not yet been completed and it can drag on for many, many years, but it's about the amounts., numbering in the hundreds of millions. So there may be extremely unpleasant news about large payments., which the company will appoint the court. Or not edred - here it is how it turns out: Themis is unpredictable in her blindness.

Accounting. According to the company's latest report, it has $17.111 billion in debt, 6,893 billion of which must be repaid within a year. She doesn't have a lot of money at her disposal.: 1,187 billion in accounts plus 3.193 billion counterparty debts.

She doesn't pay dividends.: the company canceled them in 2020. So you don't have to worry about, that the payments will cut and the shares will fall from this: there is nothing to cut. But a large amount of debt can scare away some investors from the company - after all, an increase in rates and a rise in the price of loans are ahead..

Still need to be taken into account, that recently the company has shown a tendency to invest in the expansion of production, - and that means, that debt burden, probably, will grow. Yet again, a very large debt burden greatly reduces the likelihood of the company returning dividends over a long distance.

Far from the finish line. Problems with the cost of labor and components, as well as problems with logistics may worsen and affect the company's reporting in the next half of the year. New quarantine may reduce the need for company products, that will hit her business. All in all, need to understand, that a lot of unpleasant things can happen, - The miracle of the third quarter may not happen again.

What's the bottom line?

You can take shares now by 22,74 $, then there are two options:

1. wait for growth until 26 $. So much for the shares asked back in 2018, and thinking, that the company can reach this level in the following 15 Months;
2. keep shares next 10 years. During this time or the company will be bought, or it will return dividends, from what the shares will grow at the expense of payout lovers.

Or maybe, this and that will happen: dividends will be returned first, and then someone will buy it.. But I still expect, that at a long distance the company will buy: dividend return is unlikely here.