AXL American Axle

[DTEJD1997]

Hey all:

 

I did a search and didn't see any thread on this, so I guess I will start it.

 

Is anybody else looking at American Axle, (AXL)?

 

I have driven past their HQ more times than I can count...I frequently eat less than a mile from there...

 

I know it is in the hated "auto parts supplier" category...I know they almost went bankrupt...I know they shipped a lot of jobs down to Mexico...but the company just released better than expected earnings.

 

The P/E ratio is simply getting too hard to ignore.  The P/E ratio is just over 5.  The E/V to EBIDTA ratio is in the 4's.  They still have a decent amount of financial leverage...but it doesn't appear to be too bad at first glance.

 

Of course, maybe in 5-7 years nobody will ever buy a car again, as it is all going to be driver less fleets of electric automatons!

 

Also, maybe there is going to be super recession or even depression coming up and AXL will wind up bankrupted.

 

Anybody have any thoughts on this?

[eclecticvalue]

I think you answered the question. Since electric vehicles seem to be emerging. The powertrain business will be declining business for years to come. Delphi is spinning off the powertrain unit so that it is a good indicator.

[CONeal]

Wish this thread hadn't come up.  Delete it and pretend you never heard of the company.  ;)

 

sold a few months back, will look at it again when a correction comes along. 

 

Best thing to remember is these types of companies run in cycles.  It's best to invest when they are near the bottom of the cycle (recession)

[oddballstocks]

Had a friend who made a ton of money on them simply playing the cycle.  This one is on my radar for the next correction.

 

To those who think electric cars will run them out of business how do you think electric cars work?  They still have a drive train, power needs to be distributed to each wheel.  And wheels need to be attached to something, not bolted on like a kids toy.

 

I would happily take the bet that they will survive.  I think the electric car thing is cool, but it's very overhyped.  It's like AI in tech.  The hype cycle is on high.  This is like the 1990s with the Internet, it's going to change everything now.  It did change, but took 20 years.  I think electric cars and AI are similar, there will be significant change, but wait 20 years.  And in those 20 years there should be plenty of cycles for American Axle and for investors to buy/sell.

[clutch]

What makes these kind of companies more attractive than larger suppliers like Magna?

 

They both go through the very same cycle if that's what you want to take advantage of. Magna is a bit more expensive (PE = 8.34) but still cheap. And they have more consistent ROIC / ROE and significantly less likely to go bankrupt.

 

I guess AXL is more obscure? (although i'm not sure given its 1.88B market cap)

[CONeal]

What makes these kind of companies more attractive than larger suppliers like Magna?

 

They both go through the very same cycle if that's what you want to take advantage of. Magna is a bit more expensive (PE = 8.34) but still cheap. And they have more consistent ROIC / ROE and significantly less likely to go bankrupt.

 

I guess AXL is more obscure? (although i'm not sure given its 1.88B market cap)

 

My preference to AXL is just bc I've had success with it in the past but doesn't mean it will be included in the basket when the time comes.  The fear of bankruptcy can do wonders to a stock price.  Best time to buy these companies tend to be when everyone else thinks you're crazy and you agree with them bc just the thought of buying it makes your stomach roll. 

 

Comparing numbers and ratios into one of the longest bull markets does not provide any insight for what will happen when the automotive cycle turns. Once people start pulling back on car purchases the losses at these companies compound very quickly. 

 

 

[DTEJD1997]

What makes these kind of companies more attractive than larger suppliers like Magna?

 

They both go through the very same cycle if that's what you want to take advantage of. Magna is a bit more expensive (PE = 8.34) but still cheap. And they have more consistent ROIC / ROE and significantly less likely to go bankrupt.

 

I guess AXL is more obscure? (although i'm not sure given its 1.88B market cap)

 

My preference to AXL is just bc I've had success with it in the past but doesn't mean it will be included in the basket when the time comes.  The fear of bankruptcy can do wonders to a stock price.  Best time to buy these companies tend to be when everyone else thinks you're crazy and you agree with them bc just the thought of buying it makes your stomach roll. 

 

Comparing numbers and ratios into one of the longest bull markets does not provide any insight for what will happen when the automotive cycle turns. Once people start pulling back on car purchases the losses at these companies compound very quickly.

The amount of losses depends on how bad the downturn is...the 2008 downturn was one of the worst there was...the downturn of the mid/late 90's, was not nearly as bad.

 

Further, it would be interesting to see the amount of debt companies (AXL) had going into the 2008 collapse.  I am going to guess that the debt levels TODAY are less than what they previously were.  I could be mistaken about this, but I need to research this.

 

You would also need to know the companies cost structure.  I am also going to guess that AXL is somewhat more "lean" now, than they were previously.  They have moved a lot of union work down to Mexico.

 

A downturn is most certainly going to come...but will it be tomorrow, 6 months from, 1 year, 2 years?  If things can keep going for another 18 months or so...AXL is going to pile up some SERIOUS cash.  They could pile up so much cash in another 18 months of operations, that their cash would approximately equal their debt.  If that happens, the company is SIGNIFICANTLY less risky than it has been at any time in their past.

 

There is a lot of risk here...but something in the back of my brain is telling me to look closer & pay attention.

 

 

[Spekulatius]

What makes these kind of companies more attractive than larger suppliers like Magna?

 

They both go through the very same cycle if that's what you want to take advantage of. Magna is a bit more expensive (PE = 8.34) but still cheap. And they have more consistent ROIC / ROE and significantly less likely to go bankrupt.

 

I guess AXL is more obscure? (although i'm not sure given its 1.88B market cap)

 

I feel that folks start to underestimate the impact of a downturn in the Automobile cycle for the companies involved. It is not just the volume that will be reduced, ithe pricing/margins will be hit as well. Same for the auto manufacture res as well,especially mass market like GM, F, where incentives will go up. I have heard stories about low breakeven points and not making losses in a down cycle since the early 80's and we all know what happened several times over.

 

AXL after the last acquisition carries quite a bit of debt - 3.5x EBITDA. I would also worry that they are overearning a bit because the Mexican Peso is so low.

 

My preference to AXL is just bc I've had success with it in the past but doesn't mean it will be included in the basket when the time comes.  The fear of bankruptcy can do wonders to a stock price.  Best time to buy these companies tend to be when everyone else thinks you're crazy and you agree with them bc just the thought of buying it makes your stomach roll. 

 

Comparing numbers and ratios into one of the longest bull markets does not provide any insight for what will happen when the automotive cycle turns. Once people start pulling back on car purchases the losses at these companies compound very quickly.

[educatedidiot]

Interesting to note that EV/EBITDA ratio has steadily dropped from 10x to ~3.5x over the last 5 years:

http://www.rocketfinancial.com/Charts.aspx?fID=6660&r=1825&t=4

 

Part of that I would suspect is due to the cyclical recovery in EBITDA margin getting discounted by the market, but with the EBITDA margin expanding from 10% to 15% over the same time period, the multiple compression in the other direction seems like it has been a lot more severe:

http://www.rocketfinancial.com/Financials.aspx?fID=6660&pw=219738

[DTEJD1997]

hey all:

 

What the hell happened with AXL today?  Their axle must have broke!  Down over $1.31/share!  That is over 8% drop on no apparent news...

 

Perhaps it is falling in sympathy with all the grocers?  Will AMZN be coming for cars & auto parts suppliers next?

 

Other auto related companies are weak.

 

I've really got set aside an afternoon for this thing and bust out some ciphering...

 

 

[CONeal]

A couple other part makers I'm looking at was also hit pretty good today.  Thought I read somewhere that GM was extending their summer plant shutdown to a few factories instead of just the normal 1 factory.  Not sure if that is the reason, then again their might be a growing fear that Amazon will start making their own auto parts. ;D