Garrett Motion Inc. (GTX): A Bull Case Theory

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We came across a bullish thesis on Garrett Motion Inc. (GTX) on Value Investing by Double Alpha Factory’s Substack by Maksim. In this article, we will summarize the bulls’ thesis on GTX. Garrett Motion Inc. (GTX)'s share was trading at $7.34 as of Nov 4th. GTX’s trailing and forward P/E were 6.02 and 5.95 respectively according to Yahoo Finance.

A close up of an engine piston with a commercial turbocharger attached.

Garrett Motion (GTX) operates as a key player in the mobility and industrial technology sector, focusing on high-performance turbocharging solutions for light vehicles, commercial vehicles, and industrial applications. Known for its mechanical and electrical turbo products, GTX caters to a broad spectrum of vehicle types, including gasoline, diesel, and natural gas engines, with some revenue now coming from its E-Boosting and hydrogen fuel cell compression solutions. As of 2023, GTX leads in turbochargers for internal combustion engines (ICEs), a critical technology that enables automakers to meet fuel efficiency and emission standards without sacrificing power or performance. This niche, heavily dominated by Garrett Motion and BorgWarner, has a high barrier to entry due to the technical complexity involved. Additionally, a significant portion of GTX's revenue is secured years in advance, with more than 80% of OEM sales planned four years ahead, providing solid visibility into future cash flows.

Despite the auto industry's shift towards battery electric vehicles (BEVs), GTX’s turbo business remains resilient, with turbocharger penetration expected to exceed 50% in ICE-based vehicles through 2030. As BEV adoption has slowed due to infrastructure, cost, and consumer preference challenges, hybrids—where turbo penetration is even higher—are likely to account for a larger portion of future vehicles. This benefits GTX, as hybrids require more advanced turbo systems, which offer higher margins. Moreover, GTX’s commercial and industrial applications, such as backup power generators and marine engines, represent a significant growth area, accounting for about 30% of total sales and offering higher profitability than light vehicle applications. This segment continues to expand, especially in sectors like marine and backup power, where demand is surging due to their role in ensuring stable power for critical infrastructure, such as data centers. CEO commentary from recent earnings calls reflects GTX's confidence in the durability of its turbo business, which caters to both diesel and natural gas engines for high-demand applications like locomotives and off-highway vehicles.

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