What Stocks to Buy in 2025? Gestamp: Evolution, Challenges, and Future Prospects in the Automotive Sector

 

Gestamp is a multinational corporation specializing in the design, development, and manufacturing of high-engineering metal components for the automotive industry. Originating as a local cold-stamping supplier, the company has evolved into a global powerhouse. Today, Gestamp is a multi-technical, world-leading company in the hot-stamping process.

Global Presence and Diversification of Gestamp

Gestamp operates 115 production plants worldwide, with some still under construction. While many of these plants are located in Western Europe, the company also has a significant presence in countries like the United States, Mexico, Brazil, and Argentina. Additionally, Gestamp has established facilities in Asia, including China, India, Japan, and South Korea.

Sales-wise, 10% of the revenue comes from mechanisms, 20% from chassis elements, and the remaining 70% from body components. One of Gestamp's strongest assets is its geographical diversification, enabling it to adapt better to the automotive sector's dynamic changes.

Stock Decline and Economic Challenges in 2024

Despite its global expansion and diversification, Gestamp has faced significant challenges. The stock has seen a 45% decline over the past year and a half. Early in 2024, the company indicated that this year would be a transitional period, as it focuses on improving its North American plants, which have underperformed in generating expected returns. Additionally, a 2% decline in global vehicle production negatively impacted Gestamp's revenues during the first nine months of 2024.

While consumption-related expenses have been reduced more than sales, increased personnel costs have led to a 7% drop in EBITDA. Ultimately, Gestamp's profits have fallen by 43% compared to 2023—its best year. However, a company's value should not be judged solely by its current performance but rather by the long-term cash flow it generates.

The Automotive Sector and Cyclical Challenges

Global vehicle production has shown a consistent cyclical pattern, alternating between growth and decline years. Gestamp avoids some of the challenges faced by vehicle manufacturers, such as increasing competition from Tesla and Chinese producers. With tariffs on Chinese manufacturers, any producer looking to operate in Europe must set up local factories, forcing them to rely on local component suppliers like Gestamp.

The automotive sector, in general, has struggled in the stock market due to its cyclical nature and the challenges posed by electrification. Component manufacturers like Gestamp face less direct competition and do not depend on the same level of capital intensity, allowing for greater flexibility in adapting to industry changes.

Financial Outlook and Dividend Decisions

As Gestamp navigates declining profits in 2024 and other temporary effects, its net debt has increased. In response, the board decided to reduce dividend payouts. Traditionally, the company distributed two annual dividends of 7 cents, which have now been reduced to slightly over 4 cents. This decision seems prudent, especially given that the founding family—the largest shareholders—is most affected by this move.

While Gestamp’s dividend yield may seem high due to the low stock price, the company has adjusted its payout in previous years, such as 2019 and 2021, and even withheld dividends entirely in 2020.

Founding Family Investments and Future Valuation

Over the past two months, the founding family has purchased approximately 3 million shares, amounting to an investment of nearly €8 million. This demonstrates the board’s confidence in Gestamp's long-term potential.

Based on reasonable multiples for the company, a real value projection for 2028 stands at 5, representing a 108% growth potential and a 15% annual return. Including dividends, total annual returns for shareholders could reach 21%. However, it is essential to remain aware of the risks associated with a cyclical, capital-intensive sector.

Conclusion

Gestamp has shown itself to be a company with robust long-term potential despite the current challenges in the automotive sector. With its global diversification, focus on component manufacturing, and strategic investments by the founding family, Gestamp is well-positioned to overcome future hurdles and deliver opportunities for its shareholders.

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Disclaimer:

This article is for informational purposes only and does not constitute financial advice, investment recommendations, or a suggestion to buy or sell assets. Investments in the automotive sector and other industries may involve significant risks. Always conduct thorough research (DYOR) and consult a professional financial advisor before making investment decisions. The author and the website are not responsible for any loss or damage arising from investments based on the information provided.