Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is TRW Automotive Holdings Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does TRW Automotive Holdings (UNKNOWN: TRW.DL  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for

The graphs you're about to see tell TRW's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you

Now let's take a look at TRW's key statistics:

TRW Total Return Price Chart

TRW Total Return Price data by YCharts

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

(69.5%) vs. 58%


Improving EPS



Stock growth (+ 15%) < EPS growth

156.4% vs. 49.7%


Source: YCharts. * Period begins at end of Q2 2010.

TRW Return on Equity Chart

TRW Return on Equity data by YCharts.

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity



Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we're going

TRW earns three out of seven passing grades today, having endured some rather divergent fundamentals over the past three years. Net income is up, but free cash flow is down. Shares have soared far beyond the growth of TRW's bottom line, yet return on equity has weakened. Is the company's share-price rebound sustainable? Can the fundamentals catch up to investor optimism? Let's dig a little deeper.

TRW's management stated that the increasing demand and vehicle production across North America and China has significantly contributed to the company's growth. However, the ongoing economic turmoil in Europe has impeded its overall sales growth, since TRW has 42% of its sales exposure in European automobile markets.

Fool contributor Eric Volkman notes that TRW's management is planning to shake up its existing shareholder roster. Automotive Investors -- an affiliate of the Blackstone Group -- and a few members of TRW's management are offering approximately 10.9 million shares through a secondary issue, which might suppress share prices for the near future, at least.

TRW and Delphi (NYSE: DLPH  ) are aggressively competing to capture market share in the automobile safety component segment. Similar to TRW, Delphi has 41% of its sales exposure in the European markets. TRW and Delphi are also fiercely competitive in the Chinese market -- Delphi already derives a significant amount of its revenue from the Middle Kingdom, while TRW is expanding in the country with nine new manufacturing plants.

However, TRW sports a lower valuation, which Fool blogger Anh Hoang notes is at least partly a result of Delphi's superior margins. Still, TRW could expand its margins in the future once its major expansion projects wrap up, leaving it free to better leverage its greater scale.

Putting the pieces together

Today, TRW Automotive has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

2 Strong Opportunities in China

There's good reason to believe that the most successful investors over the next few decades will be those with exposure to China's massive and growing population of domestic consumers. And there are few things that these consumers are likely to purchase with more enthusiasm than cars and trucks. In this brand-new free report, our analysts get out in front of this trend by identifying two automakers that are poised to surge along with China's middle class. If you want to be among the smart investors who get rich from this growing trend, then you'd be well advised to instantly download our free report on the topic by clicking here now.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2612825, ~/Articles/ArticleHandler.aspx, 9/26/2016 3:19:37 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/15/2015 7:59 PM
TRW.DL $105.46 Down +0.00 +0.00%
TRW Automotive Hol… CAPS Rating: ****
DLPH $69.51 Down -0.72 -1.03%
Delphi Automotive CAPS Rating: ****