Gates Industrial Corp plc (GTES) Stock Analysis
Gates Industrial Corp plc (GTES) Stock Analysis
Overall Grade: F (Concerning)
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Gates Industrial Corp plc faces challenges in financial performance that warrant careful analysis.
Key Metrics:
| Metric | Value | Context |
|---|---|---|
| ROIC | 6.7% | Below expectations |
| FCF Margin | 11.8% | Healthy cash flow |
| Debt/Equity | 0.7x | Moderate leverage |
Investment Thesis: Healthy free cash flow margin of 11.8% provides financial flexibility for growth and shareholder returns.
What is Gates Industrial Corp plc's Profitability and ROIC?
Gates Industrial Corp plc's return on invested capital of 6.7% is below the typical cost of capital. Gross margin of 39.8% with operating margin at 13.5% reflects the company's moderate market position.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 6.7% | Warning | Below cost of capital |
| Return on Equity (ROE) | 7.8% | Warning | Moderate equity returns |
| Gross Margin | 39.8% | Good | Competitive pricing environment |
| Operating Margin | 13.5% | Good | Moderate operational efficiency |
How Strong is Gates Industrial Corp plc's Cash Flow Quality?
Gates Industrial Corp plc generated $404.9M in free cash flow over the trailing twelve months, representing a 11.8% margin. Cash earnings quality is strong, with operating cash flow exceeding net income by 1.9x.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Free Cash Flow Margin | 11.8% | Good | Healthy cash generation |
| Free Cash Flow (TTM) | $404.9M | Good | Positive cash generation |
| OCF/Net Income | 1.9x | Excellent | High earnings quality |
| FCF Consistency (8Q) | N/A | Warning | Variable cash flow |
What is Gates Industrial Corp plc's Financial Health?
Gates Industrial Corp plc's debt-to-equity ratio of 0.7x indicates conservative leverage.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| Debt to Equity | 0.7x | Good | Moderate leverage |
| Net Cash Position | $-1.4B | Warning | Net debt position |
Is Gates Industrial Corp plc Stock Overvalued or Undervalued?
Gates Industrial Corp plc trades at a P/E of 21.9x, representing a premium to the sector median of N/A. Free cash flow yield of 7.3% offers attractive cash returns.
Key Metrics
| Metric | Value | Rating | Interpretation |
|---|---|---|---|
| P/E Ratio | 21.9x | Adequate | Premium valuation |
| EV/Sales | 2.1x | Good | Attractive revenue multiple |
| FCF Yield | 7.3% | Good | Attractive cash return |
Sector Rankings
| Metric | Value | Percentile | vs Median |
|---|---|---|---|
| Return on Invested Capital (ROIC) | 6.7% | Bottom 50% | 0.8x below |
| Free Cash Flow Margin | 11.8% | Top 25% | 2.2x above |
| Gross Margin | 39.8% | Top 50% | 1.2x above |
| Operating Margin | 13.5% | Top 50% | 1.7x above |
| Return on Equity (ROE) | 7.8% | Bottom 50% | 0.9x below |
| P/E Ratio | 21.9x | N/A | - |
Rating Thresholds
Return on Invested Capital (ROIC)
Measures how efficiently a company uses its debt and equity capital to generate profits. ROIC above 15% typically indicates a competitive moat.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Exceptional capital efficiency, strong competitive moat |
| Good | 12% - 20% | Above-average returns, sustainable competitive position |
| Adequate | 8% - 12% | Around cost of capital, moderate competitive position |
| Warning | 4% - 8% | Below cost of capital, value may be eroding |
| Red flag | < 4% | Significant capital destruction, fundamental issues |
Current: 6.7% (Warning - Bottom 50% of sector (median: 8.0%))
Free Cash Flow Margin
The percentage of revenue converted to free cash flow. Higher margins indicate stronger cash generation and business quality.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 20% | Strong cash generation, high-quality business |
| Good | 10% - 20% | Healthy cash conversion |
| Adequate | 5% - 10% | Moderate cash generation |
| Warning | 0% - 5% | Thin cash margins, capital intensive |
| Red flag | < 0% | Cash burn, potential liquidity concerns |
Current: 11.8% (Good - Top 25% of sector (median: 5.4%))
Gross Margin
Revenue minus cost of goods sold as a percentage. Higher gross margins indicate pricing power and competitive advantage.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 50% | Strong pricing power and competitive moat |
| Good | 30% - 50% | Healthy margins, differentiated product |
| Adequate | 20% - 30% | Moderate margins, competitive industry |
| Warning | 10% - 20% | Thin margins, commodity-like business |
| Red flag | < 10% | Very thin margins, structural challenges |
Current: 39.8% (Good - Top 50% of sector (median: 33.4%))
Debt to Equity Ratio
Total debt divided by shareholders' equity. Lower ratios indicate more conservative financing and reduced financial risk.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 0.3x | Conservative leverage, strong balance sheet |
| Good | 0.3x - 0.7x | Moderate leverage, healthy financial position |
| Adequate | 0.7x - 1.5x | Elevated leverage, monitor closely |
| Warning | 1.5x - 3.0x | High leverage, increased financial risk |
| Red flag | > 3.0x | Excessive leverage, potential distress risk |
Current: 67.0% (Good)
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Lower P/E may indicate undervaluation, while higher P/E suggests growth expectations.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | < 15x | Attractively valued, potential opportunity |
| Good | 15x - 25x | Fair value for quality company |
| Adequate | 25x - 35x | Growth premium, justify with earnings growth |
| Warning | 35x - 50x | High expectations priced in |
| Red flag | > 50x or negative | Speculative valuation or losses |
Current: 21.9x (Adequate)
Free Cash Flow Yield
Free cash flow per share divided by stock price. Higher FCF yield indicates better cash return relative to valuation.
| Rating | Range | Interpretation |
|---|---|---|
| Excellent | > 8% | High cash return, potential value opportunity |
| Good | 5% - 8% | Solid cash yield |
| Adequate | 3% - 5% | Moderate cash return |
| Warning | 1% - 3% | Low cash yield, growth expectations |
| Red flag | < 1% | Minimal cash return to shareholders |
Current: 7.3% (Good)
Frequently Asked Questions
Q: What is Gates Industrial Corp plc's Return on Invested Capital (ROIC)?
Gates Industrial Corp plc (GTES) has a trailing twelve-month Return on Invested Capital (ROIC) of 6.7%. This compares below the sector median of 8.0%. An ROIC below 8% suggests the company may be destroying shareholder value.
Q: What is Gates Industrial Corp plc's Free Cash Flow Margin?
Gates Industrial Corp plc (GTES) has a free cash flow margin of 11.8%, generating $404.9 million in free cash flow over the trailing twelve months. A FCF margin between 10-20% represents healthy cash generation for most industries.
Q: Is Gates Industrial Corp plc stock overvalued or undervalued?
Gates Industrial Corp plc (GTES) trades at a P/E ratio of 21.9x, which is above the sector median of N/A. The EV/Sales multiple is 2.1x. Free cash flow yield is 7.3%, which represents an attractive cash return to investors.
Q: How much debt does Gates Industrial Corp plc have?
Gates Industrial Corp plc (GTES) has a debt-to-equity ratio of 0.7x with total debt of $2.2 billion. Net debt position is $1.4 billion.
Q: What is Gates Industrial Corp plc's revenue and earnings growth?
Gates Industrial Corp plc (GTES) grew revenue by 1.0% year-over-year. Earnings per share increased by 31.5% compared to the prior year. Modest growth indicates a mature business with stable demand.
Q: Is Gates Industrial Corp plc buying back stock?
Gates Industrial Corp plc (GTES) repurchased $119.3 million of stock over the trailing twelve months. This represents a buyback yield of 2.2%.
Q: How does Gates Industrial Corp plc compare to competitors in Industrials?
Compared to other companies in Industrials, Gates Industrial Corp plc (GTES) shows: ROIC of 6.7% is below the sector median of 8.0% (Bottom 44%). FCF margin of 11.8% exceeds the sector median of 5.4% (Top 23% of sector). Gross margin at 39.8% is 6.5 percentage points higher than sector peers. These rankings are based on MetricDuck's analysis of all Industrials companies with available SEC filings.
Q: What warning signs should I watch for with Gates Industrial Corp plc?
Gates Industrial Corp plc (GTES) shows no major financial warning signs based on current metrics. However, investors should always monitor: 1) Margin compression trends, 2) Cash flow consistency, 3) Debt levels relative to cash generation, and 4) Changes in competitive positioning.
Data Source: Data sourced from 10-Q filed 2025-10-29. TTM metrics as of Q4 2025.
Methodology: Financial metrics calculated from SEC 10-K and 10-Q filings using standardized formulas. Sector comparisons use peer group based on SIC code.
This analysis is for informational purposes only and does not constitute investment advice.