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About Allison Transmission

If not for companies like Allison Transmissions’ and their contributions to the greater overall vehicle industry, I would be a complete and utter embarrassment, and that’s putting it politely.

Founded in September of 1915 by none other than James A. Allison, Allison Transmission Holdings has seemingly made it its company mission to make life on the road just a little bit easier. Namely, the company is in the business of designing, manufacturing and selling automatic transmissions for all sorts of commercially operated vehicles, as it should be initially noted that Allison Transmission doesn’t really focus its efforts on the recreational or traditional automobile markets, but commercial markets instead.

More on that momentarily.

With the emphasis being on automatic, their machinery helps drivers with operating their vehicles in safer and cost-efficient manners instead of having to constantly tinker and toy with shifting gears, as Allison’s technology has made it miles easier for practically any commercial driver on the road to alter their speeds in a comfortable, non-stressful fashion. 

Allison generates most of its revenues primarily through the sale of its intricate in design automatic transmissions to commercial operators all across the United States of America, such as manufacturers of city buses, garbage trucks, fire trucks, construction vehicles and even military operators, among many others that, whether they fully realize it or not, depend heavily on this company’s products and innovation thereof.

Suffice it to say Allison Transmission Holdings is a much needed middleman.

I love a company that serves its ever so specific purpose and with that, is intensely focused within the scope of its operations and what it sells, and while I am far from being any sort of expert on automatic vehicle transmissions, I like to think I am fairly good at analyzing financials in all companies, including those with such a strong foothold in the space Allison just so happens to lead.

In general, I also relish in the fact that Allison Transmission predominantly focuses on serving clients within the commercial vehicle space, as I think it acts as a sort of inherent hedge against the volatility that can become quickly and all too prevalent within the more traditional automobile market. For instance, generally speaking, demand in the commercial vehicle sector tends to be a bit more, let’s say, forecastable, than that of the passenger vehicle segment of the market, as commercial vehicle demand tends to move in near lockstep with demand in the industries in which they serve, whereas consumer vehicle purchase behavior can be a bit more scattered and unpredictable.

A brief and simple example of the commercial vehicle demand phenomenon could involve a global industrial company like Caterpillar.

As government infrastructure spending rises, heightened demand for Caterpillar’s services will follow and this is just one of the multitude of cycles a company like Allison Transmission can benefit from.

Even if/when demand does eventually wane, Allison Transmission Holdings thankfully has a customer crutch in its municipal clients across the United States, such as bus systems and the sanitation fleets it serves, which will almost certainly never go out of business anytime soon, nor will they likely experience a sharp decrease in demand in the foreseeable future.

While I would love nothing more than to just continue blabbing on and on about automatic transmissions and the background as it relates to Allison, allow me to get to the good stuff and introduce this company through the lens of its finances and ultimately share my own opinion on whether or not this company’s stock (NYSE: ALSN) is trading at a favorable “buy-and-hold” stature during the time of the publication of this here stock analysis article.

Allison’s stock financials

Allison Transmission is a $7.52 billion company (according to its current market capitalization) with a directly correlated stock price of $86.30 and it also maintains a present price-to-earnings (P/E) ratio of 11.36 while also dishing out a dividend of a quarter each and every quarter.

With this initial smidge of financial information in the melting pot, Allison Transmission’s shares seem to be trading at a fairly attractive valuation, particularly in reference to its price-to-earnings ratio and how it is markedly lower than the commonly ascribed to fair value benchmark of 20, where any figure less than the benchmark insinuates that a stock or other tradable security is trading at favorable, discounted levels.

Regardless of if all other financial figures and metrics are also in good order, Allison Transmission Holdings’ valuation does seem enticing, especially if it has been growing, especially in the context of its annualized revenues.

More on that in a moment.

Before checking in on the company’s sales, it would be wise to first take a quick look at the company’s balance sheet, where it can be found that Allison’s executives are the helm of approximately $5 billion in terms of total assets along with $3.7 billion in terms of total liabilities, which is a great balance sheet from my perspective, as the company’s management has seemingly struck an exquisite balance between having a sufficiently higher amount of capital that it owns than it owes at its disposal while also having enough in terms of total liabilities leading me to believe that Allison has been financing growth responsibly, through the deployment of debt.

Also, it can simply be recognized that Allison is a very industrial, equipment intensive company and it is only sensible that the company has a good amount of outstanding debts given the equipment it has to pay down and finance over time.

At any rate, in attempting to gain more clarity to the overall financial picture of Allison, I ventured over towards the company’s income statement and found that between and during 2019 and 2023, the company’s annualized revenues have actually been fairly net flat, fluctuating only a small amount during this time period, ranging between a relative low of just north of $2 billion in 2020 (which makes sense, hint hint, COVID-19) and a more recent high of just over $3 billion, as reported at the end of 2023.

For such a seasoned, industrial company such as this one, this sounds about right and I think was to be reasonably expected given the steady demand comments I made earlier, and while there have been some small spurts of growth over the last handful of years, I think it is safe to say that Allison’s revenues are still in a good place with respect to its valuation.

Onto the state of the company’s cash flow statement, Allison Transmission’s total cash from operations figures have trended (in terms of growth) well with its aforementioned revenues, ranging between $561 million in 2020 and a high of $847 million, as reported and displayed in 2019. While it is nice to find that Allison has the ability to carve out a cool chunk of cash each year by means of its business operations, I am frankly more interested in learning a bit more about the company’s most recently listed net profit margin.

Allison’s stock fundamentals

According to Charles Schwab’s platform, Allison Transmission Holdings’ net profit margin is listed as being a sturdy 21.95%, which is incredibly solid given just how much market share and product and manufacturing reach it has developed over the 100+ years it has been in business. 

While at this point I would usually add in some other slightly long winded comment(s) on the company’s net profit margin, in the most direct and useful scheme of things, all I really should and have to say is that Allison Transmission’s is very promising and tells me that it more than likely has a good deal of pricing power with its suppliers as well as its end users and customers.

Its net profit margin is emblematic of that of a company that is quite important and intensely relied upon within its relative business category.

Well, I guess I added the slightly long winded comment(s) anyways.

My fault.

Should you buy Allison Transmission stock?

Instead, maybe I can do a little bit better and save you some time here.

Simply put, Allison Transmission’s stock (NYSE: ALSN) is trading at a comparably low valuation, its dividend is apparently easily supported through the stout cash flows it produces through its day-to-day business operations, its revenues have been stable-to-slightly-growing overall, its balance sheet is in an excellent place and its net profit margin is a major highlight as well, reflective of the power and importance of the company, also mildly alluding to the fact that it can turn out more cash consistently through its operations, if not grow them in the years that come.

When combining all of these numbers and trying to spit out a binary and straightforward opinion regarding the company’s stock and its potential future performance based on its past and present, I have no qualms in offering Allison’s stock a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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