Why Goodyear Tire & Rubber Stock Crashed Today

Goodyear reported Q4 2025 sales of $4.9 billion (vs. analyst street sales ~$4.8 billion) and adjusted EPS of $0.39 ( vs. ~$0.49 expected), while GAAP Q4 EPS was $0.36, up 44% year-over-year. For full-year 2025, sales fell 2% to $10.8 billion, operating margins declined 170 basis points to 6.8%, and the company swung from a $0.16 per-share profit in 2024 to a $5.99 per-share loss in 2025 despite $170 million of positive free cash flow. The stock plunged roughly 15% intraday after the miss on earnings, and balance-sheet concerns are acute: market capitalization ~ $3 billion versus roughly $6.5 billion of net debt, implying an enterprise value-to-free-cash-flow of about 55x, leading the author to characterize the shares as a sell.

Analysis

Market structure: Goodyear’s miss increases pressure on cyclical auto-supplier equities and benefits larger, stronger-balance-sheet tire OEMs and aftermarket consolidators (Bridgestone, Continental, Michelin) that can take share on pricing or supply reliability. The 2025 revenue decline (-2%) with Q4 organic +4% points to uneven replacement demand; raw-material exposure (natural rubber, oil) keeps input-cost pass-through uncertain, reducing GT’s pricing power. Credit markets will react — expect wider CDS and bond spreads for mid-cap auto suppliers; equity IV should stay elevated near-term.

Risk assessment: Key tail risks are a covenant breach or forced refinancing given net debt ~$6.5B vs market cap ~$3B, an operational shock from raw-material spikes (+20% rubber/oil would compress margins another 200–300bp), or major recall litigation. Immediate (days) risk = elevated volatility and potential additional 10–25% downside; short-term (3–6 months) risk = refinancing/dilution; long-term (12–24 months) depends on deleveraging pace and margin recovery. Hidden deps include timing of divestiture proceeds and pension funding.

Trade implications: Direct trade — tactical short GT equity exposure sized 2–4% of portfolio with target -30% in 3–6 months and a hard stop at -15%; hedge via buying 3–6 month puts (25% OTM) if using options. Pair trade — short GT / long BRDCY (Bridgestone ADR) to capture relative balance-sheet strength; size 1:1 notional, horizon 6–12 months. Contrarian small asymmetric long — buy 12–18 month GT LEAPS calls 30% OTM at 0.5–1% portfolio weight to capture restructuring upside.

Contrarian angles: Consensus prices near-distress despite positive FCF ($170M) and recent divestitures — one additional asset sale or incremental $300–500M FCF could materially de-lever and trigger a >50% rebound. The market may be over-penalizing equity vs credit; a rapid credit rally or activist interest could flip the trade. Watch for unintended consequences like accelerated dealer destocking or a hostile bid for low market-cap GT that would squeeze shorts.

Key Decisions for Investors

• Establish a 3% portfolio short in GT (equity or synthetics) within 5 trading days; target 30% downside over 3–6 months, set stop-loss at 15% adverse move to limit tail squeeze risk.
• Buy 3–6 month GT puts ~25% OTM (size = 0.5–1% portfolio notional) to hedge against covenant/refinancing headlines; roll or trim if implied vol >50% or premium >5% of notional.
• Execute a pair trade: short GT / long BRDCY (Bridgestone ADR) notional 1:1 for 6–12 months to capture balance-sheet and margin divergence; take profits if spread narrows >20% or BRDCY outperforms by >25%.
• Allocate 0.5–1% of portfolio to GT 12–18 month LEAPS calls 30% OTM as a low-cost asymmetric upside bet; exit if net debt falls below $4.5B or FCF exceeds $500M annualized (deleveraging trigger).
• Reduce cyclical auto-supplier exposure by 2–4% and redeploy into defensive industrials and select commodity hedges (buy rubber/oil swaps if exposure to input inflation >10%) over the next 30 days.