Macroeconomic headwinds and supply chain disruptions have marred the performance of the auto sector. Also, rising mortgage rates and soaring inflation have put additional pressure on the industry. In November 2022, new vehicle sales in the United States fell 4% month-over-month. However, despite widespread uncertainties, sales increased 11.3% year-over-year.
The automotive industry’s long-term prospects look bright amid the increasing adoption of advanced technologies and the growing demand for electric vehicles (EVs). According to Beyond Market Insights, the size of the global EV market is projected to grow at a CAGR of 22.5% between 2022 and 2030.
Given the backdrop, quality auto stock General Motors Company (GM) could be an ideal addition to your portfolio. However, shares of fundamentally weak Nikola Corporation (NKLA) might be best avoided now.
Stock to Buy:
General Motors Company (GM)
General Motors Company designs, builds and sells trucks, crossovers, cars, and automobile parts and accessories worldwide. The company operates through GM North America; GM International; Cruise; and GM Financial segments.
On November 17, 2022, GM and Vale Canada Limited, a subsidiary of Vale S.A. (VALE), signed an agreement for the long-term supply of battery-grade nickel sulfate to enhance North American EV supply chains. This deal is expected to help GM reach its target of building 1 million EVs annually in North America in 2025.
In terms of forward Price/Sales, GM is currently trading at 0.35x, 58.2% lower than the industry average of 0.84x. Its forward EV/EBIT multiple of 10.64 is 13.8% lower than the industry average of 12.34.
GM’s trailing-12-month Capex/Sales of 10.94% is 253.8% higher than the 3.09% industry average. Its trailing-12-month EBITDA margin of 12.24% is 10.71% higher than the 11.05% industry average.
GM’s total net sales came in at $41.88 billion for the third quarter that ended September 30, 2022, up 56.4% year-over-year. Its adjusted EBIT increased 46.7% year-over-year to $4.28 billion. In addition, its EPS increased 48℅ year-over-year to $2.25.
GM’s revenue is expected to increase by 21.4% year-over-year to $154.24 billion in 2022. Its EPS is expected to grow marginally year-over-year to $7.19 in 2022. It surpassed EPS estimates in three of four trailing quarters. Over the past six months, the stock has gained 4.5% to close the last trading session at $38.28.
GM’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GM has an A grade for Growth and a B for Value and Sentiment. In the Auto & Vehicle Manufacturers industry, it is ranked #18 out of 62 stocks. Click here for the additional POWR Ratings for Quality, Momentum, and Stability for GM.
Stock to Avoid:
Nikola Corporation (NKLA)
NKLA is a technological inventor and integrator to create energy and transportation solutions. It works through two market segments: Truck and Energy.
In terms of forward Price/Sales, NKLA is currently trading at 14.77x, 1063.36% higher than the industry average of 1.27x. Its forward EV/Sales multiple of 14.54 is 790.47% higher than the industry average of 1.63.
NKLA’s trailing-12-month gross profit margin of negative 133.29% is lower than the 29.09% industry average. Its trailing-12-month ROCE of negative 113.47% compares with the 14.19% industry average.
NKLA’s cash and cash equivalents came in at $315.73 million for the period ended September 30, 2022, compared to $497.24 million for the period ended December 31, 2021. Its total current assets came in at $486.92 million, compared to $524.73 million for the same period. Also, its long-term debt came in at $283.26 million, compared to $25.05 million.
Street expects NKLA’s EPS to decrease 44.3% year-over-year to negative $1.14 in 2022. Over the past year, the stock has lost 76.7% to close the last trading session at $2.32.
NKLA’s overall F rating equates to a Strong Sell in our POWR Ratings system. It has an F grade for Stability and Quality and a D grade for Value and Growth. It is ranked #61 in the same industry.
Beyond what is stated above, we’ve also rated NKLA for Momentum and Sentiment. Get all NKLA ratings here.
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GM shares were trading at $38.27 per share on Monday afternoon, down $0.01 (-0.03%). Year-to-date, GM has declined -34.43%, versus a -15.76% 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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