Is The Goodyear Tire & Rubber Company (GT) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does The Goodyear Tire & Rubber Company (NASDAQ:GT) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

The Goodyear Tire & Rubber Company (NASDAQ:GT)What we’re looking for
The graphs you’re about to see tell The Goodyear Tire & Rubber Company (NASDAQ:GT)’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at The Goodyear Tire & Rubber Company (NASDAQ:GT)’s key statistics:

GT Total Return Price Chart

GT Total Return Price data by YCharts

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% 13.8% Fail
Improving profit margin 89.4% Pass
Free cash flow growth > Net income growth (114%) vs. 115.6% Fail
Improving EPS 76.1% Pass
Stock growth (+ 15%) < EPS growth 85.1% vs. 76.1% Pass

Source: YCharts. * Period begins at end of Q2 2010.

GT Return on Equity Chart

GT Return on Equity data by YCharts

Passing Criteria 3-Year* Change Grade
Improving return on equity 629.2% Pass
Declining debt to equity (61.2%) Pass

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we’re going
Goodyear got off to a solid start, but it tripped on both revenue and cash flow analyses. Over the past three years, The Goodyear Tire & Rubber Company (NASDAQ:GT)’s free cash flow has fallen substantially, even as the company has done an excellent job improving its profitability. That’s isn’t enough to write this stock off, as The Goodyear Tire & Rubber Company (NASDAQ:GT) still earned five out of seven passing grades, and it could achieve a perfect score with enough improvement on its free cash flow growth rate. Let’s dig a little deeper to see what Goodyear is doing to boost its revenue and free cash flow over the next few quarters.