October 1, 2012
The following video is part of our "Motley Fool Conversations" series, in which industrials editor/analyst Isaac Pino and research analyst Blake Bos discuss topics around the investing world.
During early trading today, shares surged at TRW Automotive, an auto supplier that makes a variety of electronic safety systems for autos, including adaptive cruise control, collision monitoring, and replacement parts. By the market's close, TRW's stock had risen more than 7% because of the announcement of a $1 billion buyback, totaling 17% of the company's market cap. The buyback reduces tradable shares outstanding by 20%.
The market responded positively to the buyback for several reasons. First off, the shares are trading at a price-to-earnings ratio of 6 -- less than half of the S&P 500 market average -- which could lead investors to believe that management is taking advantage of underpricing. Secondly, management's repurchase could signal that the fallout of the European car market looks less severe down the road than previously expected. Finally, the announcement could hold clues to the outcome of a pending antitrust case involving TRW. Isaac and Blake dive into the nuances of the announcement in the following video.
With a significant portion of its sales stemming from Europe, the outlook for this market will be the most crucial factor to watch for TRW.
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