Future Outlook Of The Auto Industry And Horizon Global Corporation (HZN)
Horizon Global Corporation (NYSE:HZN), a USD$430.15M small-cap, operates in the automobile industry which is a major consumer of key commodities such as copper and steel, making the car manufacturers and suppliers significant players in the global economy. Upcoming challenges facing the sector is navigating the path from current automobile models to driverless cars, requiring high capital outlays in emerging technology. The limitation of automobile incumbents is an opportunity for tech giants such as Apple and Google to develop their own software components behind networking, autonomous and communication capabilities of automobiles. Automobile analysts are forecasting for the entire industry, an extremely robust growth of 42 percent in the upcoming year, and a massive growth of 91 percent over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the automobile sector right now. In this article, I’ll take you through the automobile sector growth expectations, as well as evaluate whether HZN is lagging or leading its competitors in the industry. Check out our latest analysis for Horizon Global
What’s the catalyst for HZN's sector growth?
The increasing presence of tech firms in the auto industry cannot be overlooked or discounted by OEMs. In the next decade, software integration will likely have a significant impact on the auto industry, given the alignment of their expertise – they are proficient at seamlessly connecting components to create networks valued by consumers for the information, efficiencies, and experiences they deliver. In the previous year, the industry saw growth of over 50 percent, beating the US market growth of 53 percent. HZN lags the pack with its negative growth rate of -167 percent over the past year, which indicates the company has been growing at a slower pace than its automobile peers. As the company trails the rest of the industry in terms of growth, HZN may also be a cheaper stock relative to its peers.
Is HZN and the sector relatively cheap?
The automobile sector's PE is currently hovering around 19 times, lower than the rest of the US stock market PE of 27 times. This illustrates a somewhat under-priced sector compared to the rest of the market. Furthermore, the industry returned a higher 28 percent compared to the market’s 16 percent, potentially illustrative of a turnaround. Since HZN’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge HZN’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? HZN has been an automobile industry laggard in the past year. If your initial investment thesis is around the growth prospects of HZN, there are other automobile companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how HZN fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If HZN has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its automobile peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at HZN’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Horizon Global's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other automobile stocks instead? Use our free playform to see my list of over 50 other automobile companies trading on the market.
To help readers see pass 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.
