A cheap UK share I’d buy for the electric vehicle revolution

This cheap UK share has collapsed in value since I bought last year. But here’s why I’m thinking of buying more of the battered FTSE 250 stock.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Electric cars charging at a charging station

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

My decision to buy cheap UK share TI Fluid Systems (LSE: TIFS) shares hasn’t gone to plan just yet. Since I bought just over a year ago, the auto components maker’s share price has eroded by more than a third (or 35.6% to be exact).

I fear that the rout might not be over either as the global car industry struggles and cost pressures persist. Both Tesla and Toyota have cut production further in recent days due to Covid-19 lockdowns in China and continued supply chain problems. TIFS’s share price has slumped amid fears of prolonged damage to auto output.

But I continue to believe it has an extremely bright future as electric vehicle (EV) sales boom. And over the long term I expect its share price to rise strongly.

Riding the EV revolution

TI Fluid Systems supplies components that store and carry fluids, parts that are used in greater quantities in battery electric vehicles (BEVs) and hybrid electric vehicles (HEVs) than those with internal combustion engines. So it stands to be a big winner as demand for these cars explodes.

I’m encouraged by the rate at which TIFS is winning business with EV manufacturers. Last year it won “significant HEV and BEV programmes with multiple customers across all major production regions,” it said.

The business signed contracts worth €1bn of lifetime revenues in the field of BEVs alone in 2021. This represented almost a third of all its contract awards last year.

Impressively resilient

I think an argument can be made that TI Fluid Systems’ shares have been oversold given how resilient trading has remained in tough conditions. This is thanks in large part to the firm’s ongoing ability to outperform the global light vehicle market.

Revenues here rose 5.6% year-on-year in 2021, to €3bn, latest financials showed. Meanwhile margins increased 1% to 7.2%. As a result pre-tax profit jumped 35.7% from the prior year to €109.5m.

The strong showing was “achieved in the face of lower production volumes, global supply disruptions, labour shortages, rising costs, and volatile customer orders,” it said. The business added that its large profits increase “demonstrate the resilience of our business and our ability to successfully manage through difficult market conditions.”

Is the share price set to explode?

I’m actually tempted to increase my holdings in the company given the cheapness of its shares. City analysts think earnings will rocket 78% year-on-year in 2022. They think profits will rise an extra 50% next year as well.

As a consequence TI Fluid Systems trades on a forward price-to-earnings growth (PEG) ratio of 0.1. Any reading below 1 suggests that a stock could be undervalued. And this particular stock clearly looks especially cheap.

TIFS’ next results are due on 18 May. I think this could be the catalyst that drives the company’s share price higher again.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has positions in TI Fluid Systems. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »