Hook / Thesis
Garrett Motion (GTX) is a classic industrial-specialty turnaround that has moved from headline risk to cash generation. The last three reported quarters show revenue in a narrow band — Q1 2025 $878M, Q2 $913M and Q3 $902M — and operating income consistently in the $85M-$102M range. At ~ $18.20 a share and roughly 202 million diluted shares outstanding, the market capitalization is in the neighborhood of $3.7 billion. That implies a valuation near 12x on a conservative annualized net income run-rate and a dividend yield of about 1.4% on trailing quarterly payouts. Those are not exuberant multiples for a company with the intellectual property and OEM relationships Garrett has.
Why the market should care
Garrett is not a commodity supplier. It engineers turbochargers and electric boost systems across gasoline, diesel, natural gas and electrified powertrains. The business sits at the intersection of two durable trends: continued internal-combustion efficiency gains (turbo adoption across ICE platforms) and the electrification of powertrains where Garrett sells electric-boosting and electric motor hardware. The company disclosed a first major series production award for electric motors in its Q1 2025 release (05/01/2025) and inaugurated a Wuhan innovation center for zero-emission mobility (06/26/2025) - both product-level signs management can move the portfolio towards higher-value EV content.
Operational snapshot (what the numbers say)
- Recent quarterly revenue: Q3 2025 revenue $902M; Q2 2025 $913M; Q1 2025 $878M. That yields a rough trailing-three-quarter run-rate ≈ $2.69B and a simple run-rate near $3.6B annualized if quarterly trends persist.
- Profitability: Q3 2025 operating income $102M and net income $77M. Q1 and Q2 net income were $62M and $87M, respectively. Trailing nine months net income = $226M; simple annualization ≈ $301M.
- EPS & valuation: diluted average shares in the most recent quarter are ~202,194,334. Using the annualized net income run-rate gives an EPS run-rate ≈ $1.48 and a P/E ≈ 12x at $18.20 per share.
- Cash flow: operating cash conversion has been meaningful — Q2 2025 had $158M of operating cash, Q3 showed $100M, indicating the business generates cash from operations even with working capital swings.
- Balance sheet flags: total liabilities were $3.249B and equity is negative at -$813M (Q3 2025). Noncurrent liabilities are sizeable at $1.89B and accounts payable ~ $1.022B. Inventory sits around $320M.
Valuation framing
I estimate market cap ≈ $3.68B using the most recent trade price near $18.21 and 202.2M diluted shares. That produces two simple valuation perspectives:
- Income valuation: annualized net income ≈ $300M implies an enterprise valuation that supports a mid-teens EV/EBIT multiple at current equity value. That looks reasonable for a manufacturerd engineering franchise with differentiated products and aftermarket sales.
- Balance sheet overlay: negative book equity and $1.89B of noncurrent liabilities mean the market is rightly concerned about leverage and refinancing risk. But the company has been able to materially reduce interest cost - management announced a successful repricing of its term loan (08/06/2025) - and operating cash flow has been positive each recent quarter, which provides runway to address leverage over time.
Put another way: the income statement supports a single-digit to low-double-digit multiple; the balance sheet imposes a discount. The stock today sits at a price where the market is demanding that the company both (a) keep current OEM content wins and (b) materially repair the balance sheet. If management executes on those two dimensions, upside is asymmetric from here.
Trade idea - actionable plan
This is a high-conviction, but high-risk, long idea for a position-sized allocation to be held into 2026. The trade assumes an execution path where OEM EV awards scale and operating cash continues to convert earnings into debt reduction.
Entry: Buy 1/3 position between $18.00 - $18.50; add second 1/3 on pullback to $16.00; final 1/3 on close below $15.00 only if fundamentals unchanged and operating cash remains stable.
Stop: $15.00 (hard stop) - protects capital against a deeper macro or execution shock.
Targets: Target 1 = $24.00 (≈ +32% from $18.20) within 6-9 months if operating margins and production awards continue to show progress.
Target 2 = $30.00 (≈ +65%) by end of 2026 if management pares net debt materially and EV product content ramps.
Position sizing: Because balance-sheet risk is real, limit exposure to a single-digit percent of portfolio (suggest 1-3% of capital for retail-sized portfolios; adjust for risk tolerance).
Why these levels? $24 prices GTX at a P/E around 16x on the conservative earnings run-rate — fair for a profitable industrial supplier with EV upside. $30 assumes multiple expansion to ~20x plus some earnings growth from EV-related content.
Catalysts to drive the trade
- Series production and EV awards: the Q1 2025 disclosure of a first major series production award for electric motors is the kind of structural revenue driver that, if followed by additional OEM wins, boosts revenue per vehicle and margins.
- Debt repricing and deleveraging: successful repricing of the term loan on 08/06/2025 reduced near-term interest risk. Continued repayment of noncurrent liabilities using operating cash could materially change investor perception.
- Dividend increases / shareholder returns: management has been paying quarterly dividends (most recently increased to $0.08 declared 10/23/2025) which helps signal capital allocation discipline. Further raises or sustained payout would attract income-minded investors.
- R&D and product footprint: the Wuhan innovation center (inaugurated 06/26/2025) and ongoing EV R&D may produce higher-margin content, raising long-term return on sales.
Risks and balanced counterarguments
This is not a low-risk trade. Below are the main downsides I view as credible.
- Balance-sheet and refinancing risk - Liabilities total ~$3.25B and equity is negative -$813M (Q3 2025). If OEM programs stall or macro auto demand weakens, credit flexibility could tighten and force dilutive measures.
- Auto cyclicality - Garrett sells to OEMs; vehicle production and sales are cyclical. A sharp drop in vehicle demand would hit revenue and working capital, widening the gap between liabilities and assets.
- Execution risk on EV content - EV program awards can be lumpy and competitive. The company needs to convert prototype wins into volume production to materially shift margins.
- Working capital swings - Accounts payable (~$1.02B) and inventory (~$320M) are large; adverse supply-chain or commodity moves could compress cash flow.
- Valuation complacency risk - The stock has more than doubled from the single-digit range over the last twelve months; part of that move could be multiple expansion rather than fundamental improvement. If the market reverses risk appetite, downside could be fast.
Counterargument to my thesis: you could argue the market is correctly applying a heavy discount for a company with negative book equity and substantial noncurrent liabilities. In that view, GTX deserves a lower multiple until liabilities are materially reduced — trading selection should wait for explicit debt reduction or a clearer multi-quarter trend of EPS growth. That is a reasonable, conservative stance and would make me reduce size or wait for better risk/reward.
What would change my mind
I would reduce or exit this position if any of the following occur:
- The company reports two consecutive quarters of declining operating cash flow or a meaningful cut to OEM awards and guidance.
- There is a failed debt covenant, or management announces a dilutive equity raise primarily to cover working capital.
- Management guidance turns negative on revenue and margin secular trends despite EV wins.
Conclusion
GTX is my preferred long idea for 2026 among industrial auto suppliers because the earnings power and cash flow are already visible while the market still prices in heavy balance-sheet risk. The trade is asymmetric: steady operations and a small number of successful EV production ramps can meaningfully re-rate the stock; but if liquidity or macro auto demand breaks, downside is real. Treat this as a position-sized, high-risk long with disciplined stops and staged entries.
Disclosure: This write-up is my research view and not personalized financial advice. Position sizing and suitability depend on your risk tolerance and portfolio construction.
Selected filings referenced: Q1 2025 results on 05/01/2025; term loan repricing announcement 08/06/2025; dividend declaration 10/23/2025; Wuhan innovation center announcement 06/26/2025.