Autoliv has been treading water for the past six months, recording a small return of 4.1% while holding steady at $113.67. The stock also fell short of the S&P 500’s 11.2% gain during that period.
Is now the time to buy Autoliv, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Autoliv Not Exciting?
We’re cautious about Autoliv. Here are three reasons you should be careful with ALV, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Autoliv grew its sales at a tepid 4.7% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Autoliv’s revenue to rise by 5.3%. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.
3. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.
Autoliv has bad unit economics for an industrials business, signaling it operates in a competitive market. This is also because it’s an automobile manufacturer.
Automobile manufacturers have structurally lower profitability as they often break even on the initial sale of vehicles and instead make money on parts and servicing, which come many years later - this explains why new entrants such as Rivian, Lucid, and Nikola have negative gross margins. As you can see below, these dynamics culminated in an average 17.8% gross margin for Autoliv over the last five years.
Final Judgment
Autoliv’s business quality ultimately falls short of our standards. With its shares underperforming the market lately, the stock trades at 10.7× forward P/E (or $113.67 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Autoliv
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