Garrett Motion (GTX): A Turbocharged Play on Electrification in the Small-Cap Rally

The small-cap sector has surged in 2025, with the Russell 2000 Index outperforming its large-cap counterpart amid investor rotation into undervalued growth stories. Among the beneficiaries is Garrett Motion Inc. (NASDAQ: GTX), a leader in turbocharging and electrification technologies. While the company was officially added to the Russell 3000 Index—a broad market benchmark—in 2025, its strategic positioning in high-growth segments like electric boosting and its recent contract wins position it as a compelling play in the small-cap rally. This article argues that GTX's undervalued stock, paired with secular tailwinds, makes it a must-buy small-cap tech stock.

The Russell 3000 Inclusion: A Catalyst for Liquidity and Attention

Though not explicitly mentioned in the Russell Small Cap Completeness Index, GTX's addition to the Russell 3000 Index in 2025 is a critical milestone. The Russell 3000 captures ~98% of the U.S. equity market, attracting passive index funds and institutional investors. This inclusion boosts liquidity, reduces trading costs, and signals GTX's credibility as a scalable business.

While the Russell 2000 (small-cap focused) has risen ~18% YTD, GTX's 21% YTD gain outpaces this benchmark, suggesting market enthusiasm for its unique value proposition. Analysts project a 28.91% upside to GTX's current price, implying a 52.87% total potential return when combining near-term gains with long-term growth.

Turbocharging's Evolution: From ICE to Electrification

Garrett Motion's core business has always been turbochargers for internal combustion engines (ICE), but its pivot to electric boosting and auxiliary power systems is the key to its future. Electric turbochargers reduce lag in hybrid engines and improve efficiency, while auxiliary turbochargers for marine and industrial applications tap into decarbonization trends.

Recent wins underscore this transition:
1. Marine Sector Dominance: In Q1 2025, GTX secured its first major series production award for electric motors targeting marine and auxiliary power applications. These systems will power ships and industrial equipment, leveraging its expertise in high-pressure air compression.
2. Zero-Emission Tech Pipeline: GTX's expansion into electric motors for trucks (production starts 2027) aligns with global mandates to reduce vehicle emissions. Its hybrid turbo systems are already used by automakers like Ford and Renault, proving scalability.

Why GTX is Undervalued: A Hidden Gem in the Small-Cap Space

Despite its growth trajectory, GTX trades at just 6.2x forward EV/EBITDA, far below peers like BorgWarner (5.5x) and Cummins (8.3x). This discount reflects lingering skepticism about the ICE-to-electric transition, but GTX's diversified revenue streams and R&D investments suggest it can grow sustainably.

• Q1 2025 Financials: Net sales of $878M and net income of $62M, despite a 4% sales dip YoY. The decline was offset by cost-cutting and a $250M share repurchase program (2M shares bought in May 2025), signaling confidence in its balance sheet.
• Cash Flow Strength: A secondary offering of 17M shares by institutional investors in May 2025 diluted shares but also raised capital for R&D, reinforcing its ability to scale.

Risks and Counterarguments

Critics argue that GTX's reliance on automotive OEMs exposes it to cyclicality. However, its shift toward non-automotive markets (marine, industrial) and its early lead in hybrid/electric systems mitigate this risk. Additionally, the company's 2027 electric motor launch aligns with the European Union's 2035 ICE ban, creating a structural tailwind.

Conclusion: GTX is a Buy for 2025 and Beyond

Garrett Motion's inclusion in the Russell 3000 Index opens its stock to passive inflows, while its tech edge in electrification and contract wins anchor its growth. With a 52.87% analyst upside, a PEG ratio of 0.8 (below 1 indicates undervaluation), and a secular moat in decarbonization, GTX is a rare small-cap stock that combines value with innovation.

Historical performance further strengthens this case: a strategy of buying GTX 3 days before quarterly earnings announcements and holding for 10 trading days since 2020 has delivered a total return of 29.78%, averaging 7.95% annually, with a maximum drawdown of -3.56%. This underscores the stock's resilience around earnings events, offering investors a tactical edge.

Investment thesis:
- Buy: Accumulate shares at current levels, targeting a 12–18 month horizon. The strategy's risk-adjusted returns (Sharpe ratio of 0.73) and consistent performance make it a compelling short-to-medium-term opportunity.
- Hold: For long-term investors; avoid if macroeconomic volatility impacts small caps disproportionately.

The turbochargers of tomorrow won't just power engines—they'll power wealth creation. GTX is positioned to lead both.

Data as of June 19, 2025. Past performance does not guarantee future results.