American Axle Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of American Axle (NYS: AXL) leapt 12% in early Friday trading before pulling back to net "only" an 8% gain by trading-day's end.

So what: Per-share adjusted profits of $0.69 at the -- you guessed it -- American car-axles manufacturer beat Street expectations by more than 50%. Net profits were a similarly strong $0.65 per share. Best of all, management says there are more gains in store for later this year. Full-year sales could reach as high as $2.6 billion, and AA is looking to make perhaps a 15% EBITDA margin on those sales.

Now what: That works out to perhaps $390 million in EBITDA for the year, or roughly twice last year's number. If net income likewise doubles, we could be looking at perhaps $230 million in earnings for fiscal 2011, enough to give the company a 3.8 current-year P/E ratio.

Wall Street's not predicting anything like that, however. Right now, current-year estimates call for AA to earn perhaps $1.80 per share. That still works out to only a 6.4 P/E ratio on this projected 18% grower. At the risk of understatement, that's not a lot to pay for this muffler (and yes, I know they don't make mufflers.) Seems to me that while American Axle ran far Friday, it could still have more room to run.

Want more info on American Axle & Manufacturing Holdings?Add the stock to your Fool Watchlist.

At the time this article was published Fool contributorRich Smithdoes not own (or short) shares of American Axle.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.

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