E-bike Normalization And Industrial Automation Will Fuel Future Turnaround

Key Takeaways

• Stabilizing e-bike component demand, growth in e-Tools, and exposure to electrification trends position hGears for future revenue and margin improvement.
  
• Operational efficiencies, cost controls, and strong OEM contracts enhance earnings resilience and free cash flow stability amid sector volatility.
  
• Ongoing challenges across e-Bike, automotive, and e-Mobility segments, along with operational and financial headwinds, threaten revenue stability and overall balance sheet strength.

Catalysts

Develops, manufactures, distributes, and supplies precision components and subsystems, and system solutions in European Union, the United States, China, and rest of the world.

• Early signs of normalization in the e-bike value chain and feedback from customers indicate that inventory destocking could stabilize by late 2025, potentially supporting a turnaround and renewed demand for hGears' e-bike components in 2026, which is likely to drive higher revenues and improved capacity utilization.
  
• The continued robust growth in the e-Tools segment (+19% YoY in H1 2025), backed by structural demand for automation and robotics, positions hGears to benefit from expanding industrial automation markets beyond core automotive and e-bike applications, supporting top-line diversification and mitigating cyclical automotive sector swings.
  
• Ongoing cost reduction programs, workforce optimization, and further operational streamlining have already significantly improved adjusted EBITDA from a low base; continued discipline and additional efficiency gains are expected to structurally lift net margins and improve earnings resilience as volumes recover.
  
• The company's multi-year contracts and quota commitments with major OEMs-despite broader industry risks of insourcing-support revenue visibility and stability, providing a platform for recovering free cash flow once macro headwinds and sectoral pressures subside.
  
• Exposure to long-term megatrends in electrification and demand for lightweight, precision-engineered parts aligns hGears with regulatory and consumer shifts toward decarbonization and energy efficiency, underpinning future pricing power and average selling price growth, with a positive impact on revenues and margins as the sector rebounds.

hGears Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming hGears's revenue will grow by 7.6% annually over the next 3 years.
• Analysts are not forecasting that hGears will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate hGears's profit margin will increase from -20.6% to the average DE Auto Components industry of 4.0% in 3 years.
• If hGears's profit margin were to converge on the industry average, you could expect earnings to reach €4.7 million (and earnings per share of €0.47) by about August 2028, up from €-19.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.8x on those 2028 earnings, up from -1.0x today. This future PE is lower than the current PE for the DE Auto Components industry at 13.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

hGears Future Earnings Per Share Growth

Risks

• Persistent weakness in the e-Bike business, with ongoing destocking and excess inventories taking longer to clear than anticipated, continues to significantly depress segment revenues and may delay any meaningful recovery until at least 2026, potentially weighing on group top-line performance.
  
• Structural challenges in Western Hemisphere automotive markets, coupled with exposure to new and potential U.S. tariffs, increase uncertainty and could result in further declines in e-Mobility revenues and margin compression across key divisions if macro headwinds intensify.
  
• Reduced production volumes in the second half following significant pull-forward of H2 2025 sales into H1 creates a near-term revenue gap and limits operational leverage, posing downside risks for gross profit and adjusted EBITDA if cost measures do not fully offset the drop.
  
• Customer insourcing risk is highlighted by OEMs such as Porsche developing their own internal manufacturing capacity; despite contractual volume commitments, overreliance on such key accounts could amplify negative impacts on revenues and utilization rates should any quota reductions occur.
  
• Ongoing negative free cash flow, tighter liquidity, and reliance on temporary staff in China to support e-Tools growth point to potential strain in financial flexibility; prolonged negative cash generation or inability to sustain cost discipline could further undermine earnings quality and balance sheet strength.

Valuation

• The analysts have a consensus price target of €1.8 for hGears based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €118.1 million, earnings will come to €4.7 million, and it would be trading on a PE ratio of 4.8x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of €1.81, the analyst price target of €1.8 is 0.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.