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Goodyear Tire: An Illusory Bargain

Matthew Fry profile picture
Matthew Fry


  • Goodyear is approximately fairly priced based upon my estimates of its normalized post-pandemic FCF.
  • Management's projection for earnings and FCF is only readily achievable with an expansion in domestic market share.
  • The potential for outsized gains on GT stock is largely premised on management's ability to revert its historically poor operating performance.

Goodyear Canada Corporate office in Etobicoke, Toronto, Canada.


Investment Thesis

Many have posited that Goodyear Tire (NASDAQ:GT) is incredibly undervalued at present levels when pre-pandemic normalized earnings are taken into account. In addition, the recent Cooper Tire acquisition is set to contribute to the company’s earnings. However, when one

This article was written by

Matthew Fry profile picture
Northeastern University Undergraduate studying finance.I write about special situations, deep and growth value stocks as well as short ideas.Contact Information:Email: fry.m@northeastern.edu

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (14)

Yorick profile picture
Given there is an oligopoly now internationally, my guess is our $150 car tires are going to be $350 each in 3 years....that ought to create some margin.
Carson7 profile picture
The author, understandably, would like a do -over for this article..
Steve Fischer profile picture
Earnings just came in and in the short time since you published the article the price is up nicely- mkt on the whole is down
Aventador profile picture
The reality is the stock market is a place to make $$ but few actually do it. The bulk have no knowledge how to trade or value a company. This article is a good example of that. An article penned by someone clearly with no knowledge of the auto industry or the reason GT is trading where it currently is at. Now toss in the fact GT just penned it 3rd big quarter in a row since the Cooper acquisition and the best this article can provide is laughter.
The department of Commerce has imposed dumping duties on tires from Vietnam, south Korea, Thailand, Taiwan and China. India will soon follow.
No more flooding the U.S. market with low priced import tires. These duties may be around for a long time, since the DOC realizes that removing any of these tariffs will create yet another dumping situation.
The move toward more EVs will be a great new market for tire makers, since battery heavy vehicles need heavy duty tires due to weight.

The tire industry has pricing power.
The author is spot on. In addition to high debt and low cash flow they have plants that need updating. Also their Kelly tire line and Dunlop line have not done well . Owning Cooper only pushes those lines to the sidelines even more.
I think Cooper acquisition was smart. EV growth will help. Stock should be at $20 and if oil stays below $100 it should get there. Debt reduction will help as well
CaffeinatedPirate profile picture
I don't think you can tell the complete story of Goodyear without mentioning its EV tires. They are committed to developing lighter, more durable, and smoother tires for EVs which are heavier than standard cars. The company rolled out its first EV replacement tires in December. These tires have a 30% higher margin. Most of its near-term problems won't be solved until deep into 2023 but this is a company that stands to benefit from the otherwise disruptive EV revolution.
Steve Fischer profile picture
GT has a great position in the tire market and as so many roads are full of potholes it will be a decent investment - the PE is below 7. I like shipping and homebuilding better , but this is still attractive.
@Steve Fischer What homebuilder are you into? I recently bought BXC
Steve Fischer profile picture
@2themoooon I like MHO, BZH and TMHC. They are have increased the dollar amount of their backlog and the PE's are around 2-3. Yes housing is in a downturn but these companies are way oversold.
@Steve Fischer

When debt is high, look at EV/EBITDA rather than P/E, as P/E ignores the debt. I guess some people have in mind the question what would the P/E be if new shares would be issued to pay off all the debt.
Thanks for the article! I have done some basic math: With estimate of 564 million of net income for 2023, average 2% growth for next 5 years and an avg 60% debt ratio, intirinsic value formula gives me USD 35 per share. It will take time to get there, it will depend on managements ability to progressively lower debt while taking the best out of cooper synergies.
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