Investors often like themes, and with Aptiv's (APTV) leverage to auto electrification, active safety, and infotainment, the company and stock check a lot of boxes for investors. On top of that, Aptiv is also a well-run company that is quite likely to lead the auto supplier sector in growth over the next three to five years, with minimal legacy concerns tied to the deprioritization of legacy gasoline powertrains.
I grossly underestimated the extent to which Aptiv's appeal beyond the numbers would drive a fundamental shift in how investors approach valuation. Aptiv has now morphed into a full-on "new tech" growth stock, and is priced accordingly.
This makes valuation quite difficult for me - Aptiv trades well beyond the bounds of discounted cash flow or margin-driven EV/revenue multiples (a common relationship in the sector) and is clearly a growth stock now. So do you treat it like a stock like NVIDIA (NVDA) or even Tesla (TSLA)? If so, the target price can get extremely high very quickly. If it doesn't deserve quite those sorts of valuation, how much less?
I believe Aptiv could generate mid-teens annualized EBITDA and FCF growth over the next decade, so is that worth 30x forward earnings? 40x? 50x? Trading at over 40x '21 EPS and over 30x '22 EPS, I think these are questions prospective buyers might want to consider.
Read the full article:
No comments:
Post a Comment