Commercial Vehicle Looks Undervalued, But Business Likely To Deteriorate From Here

Long-term investing may be best for individual investors, but the reality is that investors have to deal with a market that is much more focused on the short term. That’s relevant to the Commercial Vehicle Group (CVGI) investment thesis, as the market tends to value auto and truck suppliers on the basis of their short-term EBITDA margins and revenues, and both of those numbers are likely to get worse for CVGI as the U.S. heavy-duty truck market corrects off a cyclical peak.

I can see some downside risk toward $6/share if the market really punishes the sector for weaker results in 2020, but I think fair value is closer to $8 to $10. That’s decent upside relative to the downside, and Commercial Vehicle has liquidity that could be invested in growth-oriented M&A, but CVGI’s valuation is not so unusual relative to the wider auto/truck parts sector and this business has been more cyclical than many of its larger peers in the past.

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Commercial Vehicle Looks Undervalued, But Business Likely To Deteriorate From Here