Allison Transmission Holdings Inc. (ALSN) is the world’s largest manufacturer of fully automatic transmissions for commercial vehicles, which serve as fuel-saving alternatives to less expensive manual and automated manual transmissions. It supplies its products to several end markets, including on- and off-highway equipment and military vehicles.

The company has raised guidance for 2021 due to improving demand in global On-Highway and Service Parts, and Support Equipment end markets. Plus, price increases on select products should also aid growth.

ALSN’s current ratio of 2.0 indicates that the company has more than enough liquidity to handle short-term obligations. Management is also quite efficient as the firm sports a return on equity of 36.7%. While both earnings and sales are down year over year, both are expected to soar in the current quarter.

The stock is currently undervalued with a trailing P/E of 16.90 and a forward P/E of 11.04. Its price-to-free-cash flow ratio of 11.1 is also well below the industry average. The stock has shown mixed momentum this year as evidenced by the chart below.

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Take a look at the 1-year chart of ALSN below with added notations:

ALSN has been chopping its way higher since hitting its $32 low back in September, ultimately hitting a repeated resistance at $46 (red). In addition, recent weeks have seen the stock form a $41 support (green). This has created a rectangle trading formation.

A trader could enter a long position on a break above $46 or a short position could be entered if ALSN breaks below $41.

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ALSN shares were unchanged in premarket trading Thursday. Year-to-date, ALSN has declined -1.75%, versus a 13.44% rise in the benchmark S&P 500 index during the same period.

About the Author: Christian Tharp

I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More...

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