Gates Industrial Corporation plc (GTES): A Bull Case Theory

We came across a bullish thesis on Gates Industrial Corporation plc (GTES) on Substack by Stock Analysis Compilation. In this article, we will summarize the bulls’ thesis on GTES. Gates Industrial Corporation plc (GTES)’s share was trading at $20.38 as of Dec 20^th. GTES’s trailing and forward P/E were 24.55 and 12.85 respectively according to Yahoo Finance.

Gates Industrial Corporation (GTES), a leading manufacturer of belts and hoses for vehicles and industrial machines, presents a compelling value opportunity, trading at a discount despite its strong market position and ongoing margin improvement initiatives. Over 60% of the company’s revenues come from the regular replacement of mission-critical products, providing stability and pricing power throughout the business cycle. With 83% of its sales in markets where it ranks among the top three players, Gates enjoys gross margins in the top quartile of machinery stocks in the Russell 3000® Index. Despite its strong fundamentals, GTES faced pressure beginning in 2021 when Blackstone, the majority shareholder, reduced its stake from 84% to 8%, creating an overhang on the stock and compressing its valuation relative to industrial peers.

However, Gates has since implemented several self-help strategies, such as reducing material costs, consolidating factories, and refocusing on its most profitable business segments. These efforts have led to a significant improvement in EBITDA margins, which have risen from 20.9% in 2023 to a range of 23.5-25.5%, even amidst a decline in sales. With continued margin improvement expected from these efforts and a potential recovery in the broader manufacturing economy, GTES shares trade at just 8.4x next year’s EBITDA, below the multiple of other industrial companies with similar business quality and margin profiles. This discount appears unwarranted, and as earnings improve, GTES stock presents significant upside potential.

Gates Industrial Corporation plc (GTES) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 31 hedge fund portfolios held GTES at the end of the third quarter which was 36 in the previous quarter. While we acknowledge the risk and potential of GTES as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GTES but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

Disclosure: None. This article was originally published at Insider Monkey.