TransDigm Group Incorporated

Analysis of TDG Stock

Technical Perspective TDG shows recent weakness, declining over 8% in the past month despite its typically defensive profile. It currently trades in a neutral zone within its 52-week range, having experienced a significant 23.6% drawdown over the past year. This suggests the stock is not at an extreme but lacks clear upward momentum.

Fundamental Assessment Revenue dipped last quarter, but TDG maintains impressive profitability with net margins near 17%. However, financial health is concerning due to a high debt ratio and negative ROE, while operational efficiency is hampered by a very long cash conversion cycle. The company excels at converting sales to profit but struggles with balance sheet strength and capital utilization.

Valuation & Risk Valuation appears stretched, with a forward P/E of 49 and a very high EV/EBITDA multiple, indicating premium pricing not fully backed by current earnings growth. The stock’s beta suggests lower volatility than the market, but its substantial drawdown history confirms meaningful downside risk remains.

Investment Recommendation TDG is not currently recommended for purchase. The stock’s high valuation multiples are difficult to justify given its revenue contraction, leveraged balance sheet, and operational inefficiencies. While profitability is strong, the current price already reflects optimistic growth expectations, and the fundamental headwinds pose significant risk. Investors should wait for evidence of improved revenue trends and better asset management before considering an entry.

RockFlow Model Forecast: Three Scenarios for 2026

Based on the provided analysis, here is a 12-month outlook for TDG:

12-Month Outlook for TDG

The primary catalyst for a positive re-rating over the next year would be a return to revenue growth, which is critical to justify its premium valuation. Combined with evidence of improved balance sheet management and a shortened cash conversion cycle, this could rebuild investor confidence. The key risks remain significant, including the stretched valuation, high debt levels, and the potential for further operational inefficiencies to pressure earnings if revenue does not rebound. Without a clear analyst target, the outlook is cautious; a plausible target price range would likely be contingent on demonstrating these fundamental improvements, but the current high multiples suggest limited upside and potential for further downside if headwinds persist.

Wall Street Consensus

Most Wall Street analysts are optimistic about TransDigm Group Incorporated's 12-month outlook, with consensus target around $1330.13, indicating expected upside potential.

Overall, TDG has investment potential but also faces challenges. Here are key factors to weigh before investing.

TDG has delivered mixed performance with recent weakness amid solid intermediate-term results.

The stock has declined 8.18% over the past month but remains slightly positive over three months, underperforming the broader market by 1.47% despite its beta suggesting lower volatility expectations. This indicates recent selling pressure has weighed on relative performance despite the stock's typically defensive characteristics.

Currently trading approximately 9% above its 52-week low but 18% below its high, TDG appears to be in a neutral position within its annual range despite the recent pullback. The maximum drawdown of 23.64% over the past year suggests the stock has experienced meaningful volatility, though current levels don't indicate extreme overbought or oversold conditions.

Revenue & Profitability: TDG's revenue declined to $2.29 billion in Q1 2026 from $2.44 billion in the prior quarter, reflecting a modest contraction. Despite this, the company maintains strong profitability with a gross profit margin of 56.7% and a net income margin of 16.9%, indicating effective cost management relative to its top line.

Financial Health: The company's financial health shows some strain, with a debt ratio exceeding 1.0 and a negative debt-to-equity ratio, suggesting potential shareholder deficit issues. While liquidity metrics like the current ratio of 2.75 are solid, the modest interest coverage ratio of 2.2 warrants attention to its ability to service debt obligations comfortably.

Operational Efficiency: Operational efficiency presents challenges, evidenced by a negative Return on Equity and a low asset turnover of 0.10, indicating suboptimal use of assets to generate sales. The lengthy cash conversion cycle of over 240 days, driven by high inventory days outstanding, points to significant capital being tied up in working capital.

Valuation Level TDG's valuation multiples present a mixed but concerning picture. The forward P/E of 49.4 is significantly higher than the trailing P/E of 36.7, signaling high market growth expectations. However, the negative Price-to-Book and PEG ratios, alongside an extremely high EV/EBITDA of 90.3, suggest current profitability and earnings growth are not justifying the premium valuation.

Peer Comparison A comparative analysis is not feasible as industry average data is not available. Therefore, the assessment of TDG's valuation remains purely intrinsic, lacking the critical context of sector norms which is essential for determining relative overvaluation or undervaluation.

Volatility Risk With a beta of 0.895, TDG exhibits moderately lower volatility than the broader market, suggesting some insulation from broader market swings. However, the 1-year maximum drawdown of -23.64% highlights meaningful downside exposure during adverse market conditions, indicating measurable volatility risk despite the muted beta.

Other Risks The absence of notable short interest suggests limited market skepticism or perceived downside pressure from short sellers. Nonetheless, investors should assess other factors such as liquidity, concentration risks, or sector-specific headwinds, as these could still pose challenges despite the neutral short-interest profile.