Autoliv has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 5.5% to $125.43 per share while the index has gained 6%.
Is now the time to buy Autoliv, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Autoliv Not Exciting?
We don't have much confidence in Autoliv. Here are three reasons why ALV doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Autoliv’s recent performance shows its demand has slowed as its annualized revenue growth of 1.6% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. We also note many other Automobile Manufacturing businesses have faced declining sales because of cyclical headwinds. While Autoliv grew slower than we’d like, it did do better than its peers. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Autoliv’s revenue to rise by 2.1%, close to its 7.7% annualized growth for the past five years. This projection is underwhelming and indicates its newer products and services will not catalyze better top-line performance yet.
3. Low Gross Margin Reveals Weak Structural Profitability
For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.
Autoliv has bad unit economics for an industrials business, signaling it operates in a competitive market. This is also because it’s an automobile manufacturer.
Automobile manufacturers have structurally lower profitability as they often break even on the initial sale of vehicles and instead make money on parts and servicing, which come many years later - this explains why new entrants such as Rivian, Lucid, and Nikola have negative gross margins. As you can see below, these dynamics culminated in an average 17.9% gross margin for Autoliv over the last five years.
Final Judgment
Autoliv isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 11.8× forward P/E (or $125.43 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Like More Than Autoliv
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