Despite macroeconomic concerns, auto sales in the United States are likely to rise as a result of pent-up demand and technological advances.  Also, introducing electric and driverless vehicles has sparked interest and will likely accelerate industry sales growth.

Therefore, it could be wise for investors to buy fundamentally sound auto stock Blue Bird Corporation (BLBD) now. However, I think Rivian Automotive, Inc. (RIVN) could be best avoided, given its weak financials.

Before diving deeper into the fundamentals of these stocks, let’s discuss why the automobile industry is expected to perform well.

In September, the number of new vehicles sold in the U.S. was 1,337,707 units, up 19% from September 2022. This increase in sales can be attributed to rising demand for electric vehicles and improved economic conditions. Also, the availability of appealing financing options and automaker incentives may have contributed to the increase in vehicle sales.

According to Market Research Future (MRFR), the global automotive market will increase at a CAGR of 6.9% to $6.07 trillion by 2030. The global automotive sector is expanding rapidly as a result of rising urbanization, increased infrastructure investment in emerging nations, and increased demand for high-end passenger vehicles.

Furthermore, the sector has grown swiftly in response to digital technologies. These improvements have revolutionized vehicle manufacture and usage, opening up new avenues for business expansion.

However, the US auto sector faces challenges from international competition, shifting consumer preferences, and emerging technologies like autonomous vehicles and ride-sharing services. Traditional automakers face a decline in market share and need to adapt their production and business strategies.

Stock to Buy:

Blue Bird Corporation (BLBD)

BLBD designs, engineers, manufactures and sells school buses and related parts in the United States, Canada, and internationally. It operates through two segments: Bus and Parts.

BLBD’s forward EV/Sales multiple of 0.67 is 58.4% lower than the industry average of 1.61. Its forward Price/Sales multiple of 0.59% is 54.6% lower than the industry average of 1.31.

BLBD’s trailing-12-month asset turnover ratio of 2.55x is 214.1% higher than the industry average of 0.81x. Its trailing-12-month levered FCF margin of 10.93% is 96.6% higher than the 5.56% industry average.

BLBD’s net sales for the fiscal third quarter ended July 1, 2023, increased 42.8% year-over-year to $294.28 million. Its non-GAAP net income came in at $14.49 million, compared to a non-GAAP net loss of $2.87 million in the prior-year quarter.

Also, its non-GAAP EPS came in at $0.44, compared to a non-GAAP loss per share of $0.09 in the year-ago period. Additionally, its adjusted EBITDA rose 218.6% year-over-year to $28.02 million.

The consensus revenue estimate of 1.19 billion for the year ending September 2024 represents a 6.8% increase year-over-year. Its EPS is expected to grow at 57.9% year-over-year to $1.37 for the same period. It surpassed EPS estimates in three of the four trailing quarters. BLBD’s shares have gained 116.3% over the past year to close the last trading session at $20.59.

BLBD’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

BLBD also has a B grade for Growth, Sentiment and Quality. It is ranked #14 out of 53 stocks in the B-rated Auto & Vehicle Manufacturers industry. Click here for the additional POWR Ratings for Value, Stability, and Momentum for BLBD.

Stock to Sell:

Rivian Automotive, Inc. (RIVN)

RIVN designs, develops, manufactures, and sells electric vehicles and accessories. The company offers five-passenger pickup trucks and seven-passenger sports utility vehicles.

RIVN’s forward EV/Sales multiple of 2.40 is 114.7% higher than the industry average of 1.12. Its forward Price/Sales multiple of 4.02% is 395.4% higher than the industry average of 0.81.

RIVN’s trailing-12-month gross profit margin of negative 96.08% is compared with the industry average of 35.41%. Its trailing-12-month EBIT margin of negative 210.90% is compared with the industry average of 7.36%.

For the second quarter that ended June 30, 2023, RIVN’s gross loss came in at $412 million, while its loss from operations stood at $1.29 billion. Additionally, RIVN’s net loss came in at $1.20 billion.

Moreover, as of June 30, 2023, the company’s cash and cash equivalents stood at $9.26 billion, compared to $11.57 billion as of December 31, 2022. Also, its current assets amounted to $12.86 billion, compared to $13.13 billion as of December 31, 2022.

Street expects RIVN’s EPS is expected to come in at negative $4.93 for the year ending December 2023. Over past year the stock has lost 49.4% to close the last trading session at $18.27.

RIVN’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system.

It is ranked #49 in the same industry. It has an F grade for Value, Stability and Quality. To see additional RIVN’s ratings for Growth, Sentiment, and Momentum, click here.

What To Do Next?

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BLBD shares were trading at $20.23 per share on Friday afternoon, down $0.36 (-1.75%). Year-to-date, BLBD has gained 88.89%, versus a 13.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...

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