APTIV PLC (NYSE:APTV) Presents a Compelling Case for Value Investors

The search for undervalued companies with solid basic financials represents a core principle of value investing. This strategy, made famous by Benjamin Graham and later Warren Buffett, involves finding stocks trading for less than their intrinsic value. A disciplined method requires looking past a low price to ensure the company is also financially stable, profitable, and capable of lasting growth. Screening for stocks that show a good valuation rating along with acceptable scores for health, profitability, and growth can help investors find potential opportunities that match this philosophy.

Valuation Metrics

The valuation of a stock is the starting point for any value investor, as it indicates the price the market is currently demanding for a piece of the business. Aptiv PLC (NYSE:APTV) presents an interesting case on this front, earning a Valuation Rating of 7 out of 10. The analysis reveals several key points that suggest the stock is trading at a reasonable, if not low, price.

• The company's Price-to-Earnings (P/E) ratio of 11.68 is much lower than the S&P 500 average of 27.54, indicating a much more attractive entry point.
• Compared to its industry peers in the Automobile Components sector, Aptiv is less expensive than 71.60% of companies based on its P/E ratio.
• Its Price-to-Free Cash Flow ratio is also positive, being less expensive than 71.60% of the industry, which is a good indicator of value as cash flow is harder to manipulate than earnings.

This positive valuation is exactly what value investors look for, as it provides a potential "margin of safety", a buffer between the price paid and the estimated intrinsic value of the company.

Financial Health

A low-priced stock is of little value if the company is on unstable financial ground. Therefore, assessing financial health is critical to avoid "value traps", companies that appear inexpensive but are fundamentally weakening. Aptiv receives a neutral Health Rating of 5 out of 10. The report shows a mixed but generally stable picture.

• The company is creating value, as its Return on Invested Capital (ROIC) comfortably exceeds its Cost of Capital (WACC).
• A positive signal is the reduction in shares outstanding over the past one and five years, indicating a shareholder-friendly management that is using capital to increase the value of each remaining share.
• Liquidity is acceptable, with a Quick Ratio of 1.24 that is better than 72.84% of its industry peers, suggesting it can meet short-term obligations.
• A point of consideration is the Debt-to-Equity ratio of 0.80, which is higher than 81.48% of the industry, indicating a greater use of debt financing.

While the debt level warrants attention, the company's ability to generate cash flow to service that debt, as shown by a good Debt-to-Free-Cash-Flow ratio, helps lessen the associated risks for a value investor.

Profitability and Growth

For a value investment to achieve its potential, the company must be profitable and have a believable growth path. This ensures the business can compound its earnings over time, ultimately driving the stock price higher. Aptiv's Profitability Rating is a neutral 6, while its Growth Rating is a 4.

On the profitability side, Aptiv shows strength:

• It has been consistently profitable with positive cash flow in each of the past five years.
• It has an excellent Return on Equity of 10.45%, outperforming 90.12% of its industry, which signals efficient use of shareholder capital.

The growth picture is detailed but shows potential:

• The company posted a notable 35.66% growth in Earnings Per Share (EPS) over the last year.
• Looking forward, analysts expect a quite good EPS growth of 14.34% yearly.
• A potential headwind is the small decrease in revenue over the past year, though the five-year average revenue growth remains positive.

For a value investor, this combination is key: the stock is priced inexpensively today, but the market may be underestimating its future earnings power, creating the potential for price appreciation as growth happens.

Conclusion

Aptiv PLC represents an interesting candidate for investors using a value-focused strategy. The stock is priced at a clear discount to the broader market and a large portion of its industry, providing that essential margin of safety. While its financial health has some mixed signals, its good profitability and expected earnings growth suggest the basic business is sound and has room to develop. The fundamental analysis indicates that Aptiv is not just a statistically inexpensive stock, but one with the operational strength to potentially grow into a more solid valuation over time.

You can review the full fundamental analysis report for Aptiv here.

This analysis of Aptiv was identified using a "Decent Value" screening strategy. If you are interested in discovering other companies that fit this profile of good valuation with acceptable fundamentals, you can find more screening results via this link.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The content represents the opinion of the author based on the data provided and should not be the sole basis for any investment decision. All investments involve risk, including the possible loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.