Methode Electronics, Inc. (MEI): A Bull Case Theory

We came across a bullish thesis on Methode Electronics, Inc. (MEI) on Substack by DeepValue Capital. In this article, we will summarize the bulls’ thesis on MEI. Methode Electronics, Inc. (MEI)’s share was trading at $6.51 as of March 28^th. MEI’s trailing and forward P/E were 14.57 and 6.93 respectively according to Yahoo Finance.

Methode Electronics (MEI) is an industrial and automotive components manufacturer with a diversified business model. In fiscal 2024, its revenue breakdown was Automotive (53.7%), Industrial (41.3%), Interface (4.8%), and a now-shuttered Medical segment (0.2%). The company operates manufacturing facilities across the U.S., Mexico, Malta, Belgium, China, and Egypt. MEI has seen a massive stock decline of over 85% from its highs, which, combined with an improving macro backdrop and internal changes, makes it an interesting turnaround candidate.

Historically, Methode has maintained a median return on invested capital (ROIC) of 13%, indicating a solid business foundation. With a current market cap of $250M and a normalized free cash flow (FCF) of $63M, the stock trades at an extremely low 4x FCF, compared to its historical median multiple of 16x. The company has undergone a leadership transition, appointing John DeGaynor as CEO, a former executive at Stoneridge and SRG Global. While his track record is mixed—delivering 150% returns for Stoneridge shareholders over eight years but overseeing a margin decline—his leadership presents both risk and potential upside.

The manufacturing sector, after a prolonged downturn since 2022, is now rebounding, which could serve as a significant tailwind. If Methode’s margins recover to historical levels and it returns to its average FCF multiple, investors could see a 4x return over three to five years, translating to a 32-60% CAGR. However, the success of this turnaround hinges on management execution. Investors need to evaluate whether DeGaynor can drive sustainable improvements and whether the company’s strategic initiatives will materialize. For investors willing to bet on a beaten-down industrial with recovery potential, Methode is worth further research.

Methode Electronics, Inc. (MEI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 21 hedge fund portfolios held MEI at the end of the fourth quarter which was 21 in the previous quarter. While we acknowledge the risk and potential of MEI 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 MEI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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