SCFLF - Schaeffler AG: A Contrarian Buy
All figures in Euros unless otherwise stated.
The Chinese central government stimulated new car sales from 2015-2017 with tax policy that front-loaded 2018 and 2019 demand. When stimulus ended in 2018, new car inventory spiked and demand for Schaeffler’s (OTC:SCFLF) products fell. This hurt Schaeffler’s operating performance because it’s a capital-intensive business with high fixed costs. Consequently, the stock price has fallen more than 56% from its peak and may be close to a cyclical low.
A discounted cash flow valuation suggests that the stock is 27% undervalued using conservative assumptions. Potential reasons