How High Can Cooper Tire Fly?

This stock just hit a 52-week milestone. Where will it head from here?

Travis Hoium
Travis Hoium
Sep 11, 2012 at 12:00AM

Shares of Cooper Tire & Rubber (NYSE: CTB) hit a 52-week high yesterday. Let's look at how it got here and whether clear skies are ahead.

How it got here
After a few years of strong recovery, the car industry has sputtered in recent quarters as the economy can't seem to get a firm footing. But, Cooper Tire is firing on all cylinders and is hitting new highs after crushing earnings estimates in the second quarter, continuing its strong operational growth.

Revenue jumped 15% in the second quarter to $1.06 billion and, despite the weak economy, the Americas drove the way by bumping sales up 16%.

What has been most impressive about Cooper Tire's move higher is that competitors and original equipment manufacturers for cars aren't following the same path. Goodyear Tire & Rubber (NYSE: GT) saw sales decline last quarter and Ford (NYSE: F) and General Motors (NYSE: GM) did as well and their stocks have been pretty stagnant as a result.

CTB Chart

CTB data by YCharts

Below are the metrics that illustrate Cooper Tire's great performance. Only Ford can beat it in profit margin, and Cooper crushes everyone else in growth.

  Price/Book Quarterly Revenue Growth Profit Margin Forward P/E
Cooper Tire 2.1 15.2% 7.2% 7.5
Goodyear 7.2 (8.4%) 1.3% 5.3
Ford 2.3 (6.5%) 13.3% 6.8
General Motors 1.2 (4.5%) 3.0% 5.8

Source: Yahoo! Finance

Even with all of this the company still trades at a P/E ratio below eight, a good value if growth can continue.

What's next?
Cooper Tire obviously has performed very well over the past year, but to think it can keep outperforming rivals by such a wide margin is asking too much. In the quarterly conference call management was very concerned about the overall economic environment -- that overhang will be a drag on the company going forward. Raw material costs are also having an effect on margins.

I think the stock can continue to outperform the market given the current margin level and growth, but not at the same level it has for the past year. The CAPS community isn't convinced it will outperform at all, giving the stock a three-star rating. Let us know what you think about Cooper Tire in the comments section below.

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