Goodyear currently trades at $7.04 per share and has shown little upside over the past six months, posting a small loss of 2.8%. The stock also fell short of the S&P 500’s 5% gain during that period.
Is now the time to buy Goodyear, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Goodyear Will Underperform?
We don't have much confidence in Goodyear. Here are three reasons there are better opportunities than GT and a stock we'd rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Goodyear’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.8% over the last two years. 
2. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
While Goodyear posted positive free cash flow this quarter, the broader story hasn’t been so clean. Goodyear’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1%, meaning it lit $1.04 of cash on fire for every $100 in revenue.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Goodyear historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.9%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.
Final Judgment
We see the value of companies helping their customers, but in the case of Goodyear, we’re out. With its shares lagging the market recently, the stock trades at 22× forward P/E (or $7.04 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Goodyear
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