TransDigm currently trades at $1,268 per share and has shown little upside over the past six months, posting a small loss of 1%. The stock also fell short of the S&P 500’s 5.2% gain during that period.
Given the weaker price action, is now a good time to buy TDG? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free.
Why Are We Positive On TDG?
Supplying parts for nearly all aircraft currently in service, TransDigm (NYSE:TDG) develops and manufactures components and systems for military and commercial aviation.
1. Core Business Firing on All Cylinders
In addition to reported revenue, organic revenue is a useful data point for analyzing Aerospace companies. This metric gives visibility into TransDigm’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, TransDigm’s organic revenue averaged 17.4% year-on-year growth. This performance was fantastic and shows it can expand quickly without relying on expensive (and risky) acquisitions. 
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
TransDigm’s EPS grew at a remarkable 14.6% compounded annual growth rate over the last five years, higher than its 8.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
TransDigm has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 19.6% over the last five years.
Final Judgment
These are just a few reasons why TransDigm ranks near the top of our list. With its shares underperforming the market lately, the stock trades at 33.3× forward price-to-earnings (or $1,268 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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