Tower International Inc (NYSE:TOWR), a US$685.08m small-cap, operates in the auto industry which is a major player in the economy due to its high commodity consumption. New growth opportunities in smart cars and software is not the traditional focus for most auto companies. Automobile analysts are forecasting for the entire industry, a positive double-digit growth of 14.86% in the upcoming year , and a massive growth of 41.34% over the next couple of years. This rate is larger than the growth rate of the US Today, I will analyse the industry outlook, and also determine whether Tower International is a laggard or leader relative to its automobile sector peers.
What’s the catalyst for Tower International’s sector growth?
The growing presence in the auto industry of technology firms incontrovertible. In the past year, the industry delivered growth in the teens, though still underperforming the wider US stock market. Tower International lags the pack with its negative growth rate of -28.44% over the past year, which indicates the company has been growing at a slower pace than its automobile peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 78.81% in the upcoming year. This future growth may make Tower International a more expensive stock relative to its peers.
Is Tower International and the sector relatively cheap?
Automobile companies are typically trading at a PE of 12.88x, below the broader US stock market PE of 18.18x. This illustrates a somewhat under-priced sector compared to the rest of the market. Furthermore, the industry returned a higher 14.40% compared to the market’s 11.39%, potentially illustrative of a turnaround. On the stock-level, Tower International is trading at a PE ratio of 14.17x, which is relatively in-line with the average automobile stock. In terms of returns, Tower International generated 16.20% in the past year, which is 1.80% over the automobile sector.
Tower International’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If Tower International has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at Tower International’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has TOWR’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Tower International? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.