TransDigm currently trades at $1,377 per share and has shown little upside over the past six months, posting a middling return of 2.8%. However, the stock is beating the S&P 500’s 5.4% decline during that period.
Is there still a buying opportunity in TDG, or does the price properly account for its business quality and fundamentals? Find out in our full research report, it’s free.
Why Is TransDigm a Good Business?
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
We can better understand Aerospace companies by analyzing their organic revenue. 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 16.2% 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 an astounding 18.9% compounded annual growth rate over the last five years, higher than its 7.5% 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
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.
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 20.3% over the last five years.
Final Judgment
These are just a few reasons why TransDigm is a cream-of-the-crop industrials company, and with its recent outperformance amid a softer market environment, the stock trades at 35.4× forward price-to-earnings (or $1,377 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than TransDigm
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