What happened

American Axle & Manufacturing Holdings (AXL -1.19%) stock drove into a ditch Friday morning, its shares falling 9.5% through 11:25 a.m. ET after the car parts manufacturer reported a quarterly loss where investors had expected a quarterly profit.

Heading into Q4 2022, analysts had forecast that American Axle would earn $0.01 per share (adjusted) on sales of $1.39 billion. As it turned out, American Axle nailed the sales target but whiffed on earnings. Instead of a profit, the company reported a $0.07-per-share loss.  

So what

The news wasn't all bad. As mentioned earlier, both the $0.01-per-share expected profit and the $0.07-per-share actual loss were "adjusted" numbers -- not earnings as calculated according to generally accepted accounting principles (GAAP). As it turned out, American Axle's GAAP profit was a respectable $0.11 per share.  

So despite what the headlines may be telling you, American Axle actually was profitable last quarter. What's more, free cash flow -- an even better measure of profitability than GAAP accounting, in my book -- was a strong $95 million.

This strong finish to the year means that for all of 2022, American Axle delivered:

  • 5% sales growth to $5.8 billion.
  • An increase of more than tenfold in per-share earnings to $0.53.
  • And full-year free cash flow of $277.5 million.

Now what

Admittedly, that free-cash-flow number was down 22% year over year, a disappointing result given the growth in both sales and earnings. But 2022 was anything but an ordinary year for the car industry -- as was 2021, to which the results are being compared -- characterized by an increased availability of cars to buy but still-struggling supply chains needed to build those cars.

The very weirdness of the last few years makes it hard to say exactly where American Axle stands today -- or how investors should be looking at the stock. Still, management is forecasting continued revenue growth in the year ahead, with sales approaching perhaps $6.1 billion, which would make for 5% growth year over year. Free cash flow, too, will remain mostly intact, with management forecasting a midrange number of about $262.5 million.

With American Axle stock currently selling for about $1.05 billion, that works out to a price-to-free-cash-flow ratio of just 4.0 -- or 14.0 if you adjust the price to take into account net debt. At prices like these, American Axle stock shouldn't have to grow very fast at all over the next few years to justify its valuation.