Autoliv has been treading water for the past six months, recording a small return of 3.8% while holding steady at $122.73. The stock also fell short of the S&P 500’s 9.7% 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 sitting this one out for now. Here are three reasons why ALV doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Autoliv grew its sales at a mediocre 7% compounded annual growth rate. This was below our standard 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 1.8%, close to its 7% annualized growth for the past five years. This projection doesn't excite us and indicates its newer products and services will not lead to better top-line performance yet.
3. Low Gross Margin Reveals Weak Structural Profitability
Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.
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 17.9% gross margin for Autoliv over the last five years.
Final Judgment
Autoliv’s business quality ultimately falls short of our standards. With its shares trailing the market in recent months, the stock trades at $122.73 per share (or a forward price-to-sales ratio of 0.8×). The market typically values companies like Autoliv based on their anticipated profits for the next 12 months, but there aren’t enough published estimates to arrive at a reliable number. You should avoid this stock for now - better opportunities lie elsewhere. We’d suggest looking at one of our top software and edge computing picks.
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