Garrett Motion (GTX)

Turbocharger technology company Garrett Motion (NYSE:GTX) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 9.2% year on year to $902 million. The company’s full-year revenue guidance of $3.55 billion at the midpoint came in 0.6% above analysts’ estimates. Its GAAP profit of $0.38 per share was 19.1% above analysts’ consensus estimates.

Company Overview

A key player in the transition to cleaner vehicles, Garrett Motion (NYSE:GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Garrett Motion competes with other turbocharger and automotive technology suppliers such as BorgWarner (NYSE:BWA), Mitsubishi Heavy Industries (TYO:7011), IHI Corporation (TYO:7013), and Continental AG (ETR:CON), particularly in the growing electric vehicle and hydrogen fuel cell components markets.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Garrett Motion’s 4.4% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Garrett Motion’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4% annually.

This quarter, Garrett Motion reported year-on-year revenue growth of 9.2%, and its $902 million of revenue exceeded Wall Street’s estimates by 4.1%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Garrett Motion has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 19.6% gross margin over the last five years. Said differently, Garrett Motion had to pay a chunky $80.39 to its suppliers for every $100 in revenue.

This quarter, Garrett Motion’s gross profit margin was 20.6%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Garrett Motion’s operating margin has risen over the last 12 months and averaged 13.6% over the last five years. On top of that, its profitability was top-notch for an industrials business, showing it’s an well-run company with an efficient cost structure. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Garrett Motion’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Garrett Motion generated an operating margin profit margin of 14.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Garrett Motion, its EPS declined by 12.7% annually over the last five years while its revenue grew by 4.4%. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

We can take a deeper look into Garrett Motion’s earnings to better understand the drivers of its performance. A five-year view shows Garrett Motion has diluted its shareholders, growing its share count by 166%. This has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Garrett Motion, its two-year annual EPS growth of 35.2% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, Garrett Motion reported EPS of $0.38, up from $0.24 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Garrett Motion’s full-year EPS of $1.57 to shrink by 1.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Garrett Motion has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.6%, subpar for an industrials business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Garrett Motion to make large cash investments in working capital and capital expenditures.

Taking a step back, an encouraging sign is that Garrett Motion’s margin expanded by 20 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Garrett Motion’s free cash flow clocked in at $90 million in Q3, equivalent to a 10% margin. This result was good as its margin was 4.3 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Garrett Motion hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 64.7%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Garrett Motion’s ROIC has increased over the last few years. This is a good sign, and we hope the company can keep improving.

Garrett Motion reported $230 million of cash and $1.5 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $525 million of EBITDA over the last 12 months, we view Garrett Motion’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $106 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Garrett Motion blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock remained flat at $17.43 immediately after reporting.

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Garrett Motion.

Garrett Motion’s business quality ultimately falls short of our standards. To begin with, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its projected EPS for the next year is lacking. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Garrett Motion’s P/E ratio based on the next 12 months is 10.2x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $20.80 on the company (compared to the current share price of $17.43).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.