Investidea: Goodyear, because it's a good year

Инвестидея: Goodyear, потому что хороший год

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 duration: 14% for 15 months; 8% annual 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. Hopefully, 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 are we writing, Are forecasts and hypotheses, not a call to action. It is up to you to rely on our thoughts or not..

And what about the author's predictions

Research, for example 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 perform better than people, but alas, they work worse.

Therefore, we do not try to build complex models.. The profit forecast in the article is the author's expectations. We indicate this forecast as a guideline. As with the investment 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. "Goodyear tires and rubber," explains her activities.: it is engaged in the production and sale of tires for a variety of equipment.

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, sales related, - Essentially, these services, which the company provides to its customers, buying tires from her.
  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.
  results 2020 of the year Total: loss on net income and preservation of dividends

According to the company's annual report, its revenue is divided into regional segments. 2020 it was a very difficult year. 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 his 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%.

Revenue of the company by country:

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

Инвестидея: Goodyear, потому что хороший год

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, and in 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". I 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..

  Bundle of investment news: holiday season and automation of industry

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. I think, in this regard, 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 amounts!» The company is a defendant in a number of lawsuits as a harmful production, and about the fraud of the management with securities. Generally, 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 need to 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 does not 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, most likely, 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. Generally, need to understand, that a lot of unpleasant things can happen, - The miracle of the third quarter may not happen again.

What is the bottom line

You can take shares now by 22,74 $, and 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.
  SPY is slowly moving up

Or maybe, both 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.

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