Despite struggles in the consumer cyclical space this year, some stocks have thrived, outperforming the market. While energy has seen the largest year-to-date return, consumer cyclical stocks have declined, with the vehicles and parts industry especially struggling. However, some stocks within this sector are outperforming the S&P 500, including Allison Transmission Holdings Inc. which has outperformed the benchmark index by at least 15% year to date.
Allison Transmission, founded in 1915, manufactures automatic transmissions and hybrid propulsion systems for various commercial vehicles. The company operates globally with regional headquarters in the Netherlands, China, and Brazil, as well as manufacturing facilities in multiple countries. With a single segment generating $3.03 billion in sales last year, Allison Transmission reported record fourth-quarter and full-year results for 2023, showing growth in revenue, net income, and Ebitda over the previous year.
Despite a significant amount of debt at $2.51 billion, Allison Transmission’s operations are healthy with a good interest coverage ratio and a perfect Piotroski F-Score. The company has also engaged in share buybacks and increased its dividend for the fifth consecutive year. While the stock has a market cap of $7.21 billion and gained around 45% year to date, it appears significantly overvalued based on historical ratios and analysts’ projections, with a GF Score of 83 out of 100 indicating good outperformance potential.
Despite selling activity among guru investors and insiders, Allison Transmission’s strong fundamentals and operations suggest that it will continue to outperform in the coming months. With a strong performance in 2023 and optimistic projections for 2024, the company is expected to see further growth. The stock’s overvaluation should not deter investors from considering its potential, as its financial strength and profitability indicate a solid foundation for continued success. Investors may still find value in Allison Transmission despite concerns about its market value and selling activity among insiders.
