Gates Industrial Corporation plc GTES has recently captured the attention of investors. The stock touched a new 52-week high of $22.43 yesterday and pulled back to end the trading session at $22.12.

This global manufacturer of innovative, highly engineered power transmission and fluid power solutions gained 79.5% in the past year, strongly outperforming the Zacks Manufacturing - General Industrial industry’s 34.3% rally. Impressively, the company has outpaced some industry bigwigs like Illinois Tool Works Inc. ITW, Parker-Hannifin Corporation PH, Ingersoll-Rand plc IR in the same time frame.

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The company benefits from restructuring and other strategic initiatives and a diversified product portfolio. Also, the emphasis on product innovation and replacement channel customers bode well.

What Technical Indicators of GTES Shows?

Technical indicators show that Gates stock has been ceaselessly trading above the 50-day simple moving average (SMA) and 200-day SMA. The 50-day SMA continues to read higher than the 200-day moving average, indicating a bullish trend.

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As Gates’ stock soars on solid fundamentals, let’s check whether it is a good buy now or if the rally has run its course.

Stable & Diversified Revenue Streams

Gates operates in more than 30 countries, reducing reliance on any single market. Its diversified geographical presence ensures resilience against regional economic downturns. The company serves critical sectors like automotive, agriculture, construction, and industrial manufacturing, which maintain consistent demand for its products. It has been expanding in high-growth regions such as Asia and Latin America, capitalizing on industrialization and infrastructure development.

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Gates is well-positioned to benefit from global trends like vehicle electrification and the push for sustainable manufacturing practices. Its products are increasingly used in electric vehicles and renewable energy applications.

Innovative Solutions & Brand Reputation

Gates specializes in power transmission and fluid power products, such as belts, hoses, and hydraulic systems, which are essential across industries. Its products are known for reliability and durability. Gates invests significantly in research and development to enhance product performance and sustainability. It continuously develops products to cater to changing customer needs, including those focused on reducing emissions and improving energy efficiency.

GTES has established itself as a trusted name in the market, benefiting from a reputation for engineering excellence. A significant portion of its revenues comes from the aftermarket, where recurring demand for replacements and maintenance products supports steady cash flow.

Strong Cost Management

Despite global supply chain challenges, Gates has maintained a steady focus on optimizing its manufacturing processes and sourcing strategies to mitigate costs. In the first nine months of 2024, cost of sales decreased 7.7% year over year. SG&A expenses also decreased by $16.3 million, primarily attributable to certain one-time changes, partially offset by increased outbound freight and warranty costs.

In the third quarter of 2024, it generated more than 100 basis points of gross margin improvement in an uneven end-market environment. Backed by this, the company has increased its full-year adjusted earnings per share (EPS) guidance and expects to achieve a solid increase in adjusted EBITDA margin.

GTES’ Valuation Metrics: Still a Bargain?

Gates stock is currently undervalued compared to the industry as a whole, as shown in the chart below. However, the stock is currently trading at a forward 12-month earnings multiple of 14.53X, higher than its five-year median of 12.42X.

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Investing in a lower-valued stock can be advantageous because it may offer higher potential returns if the market eventually recognizes its true value.

GTES’ Positive Estimate Movement

Analysts are showing confidence in the stock, as indicated below by recent upward revisions in EPS estimates for 2024 and 2025. Although the estimated figure for 2024 reflects a 1.5% decline from the prior year, the same for 2025 indicates 14.9% year-over-year growth. The stock also flaunts a Value Score of B.

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How to Play GTES Stock?

Amid many strengths, Gates faces challenges that could impact its short-term performance. Declining net income, exposure to cyclical industries, and reliance on the automotive sector, which is transitioning to electric vehicles, pose risks. High debt levels increase financial vulnerability, and currency fluctuations from its global operations can impact earnings. Competitive pressures and rising costs from supply chain disruptions further weigh on profitability. While Gates has potential for growth in emerging markets, slower expansion in mature regions and evolving industry trends require careful strategic execution.

Given its stable fundamentals and potential for growth in key markets, GTES remains a solid company for long-term investors. However, above-mentioned risks warrant careful consideration, particularly for risk-averse investors.

As a Zacks Rank #3 (Hold) stock, Gates could deliver steady returns if it successfully manages challenges and capitalizes on growth opportunities. Potential investors may wait for improved profitability and clarity on debt reduction efforts before increasing exposure. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Illinois Tool Works Inc. (ITW) : Free Stock Analysis Report

Parker-Hannifin Corporation (PH) : Free Stock Analysis Report

Ingersoll Rand Inc. (IR) : Free Stock Analysis Report

Gates Industrial Corporation PLC (GTES) : Free Stock Analysis Report

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