Despite the high borrowing costs and uncertain macroeconomic environment, the auto industry is well-positioned for growth due to robust customer demand, the increasing shift to electric vehicles, easing up of supply chains and falling inflation.

While I think Rolls-Royce Holdings plc (RYCEY) could be a solid buy now, this might not be the right time to invest in Rivian Automotive, Inc. (RIVN) and LCI Industries (LCII) due to their weak fundamentals.

Before diving deeper into their fundamentals, let’s discuss why the auto industry is well-positioned for growth.

Sales of new vehicles last year dropped to their lowest level since 2011 due to the challenges posed by high inflation, rising interest rates, and supply chain constraints. However, auto sales have bounced back strongly this year as new-vehicle sales in September rose 0.7% sequentially and 18.5% year-over-year.

The automotive industry is seeing substantial growth driven by the transition to electric vehicles (EVs). The transition is being supported by supportive government policies, growing investments by automakers to electrify their fleet, heightened climate change concerns, and expanding public charging infrastructure.

According to Market Research Future (MRFR), the global automotive market is expected to grow at a CAGR of 6.9% to reach nearly $6.07 trillion by 2030. This growth will be driven by rapid urbanization, increased infrastructure investment in emerging economies, and rising demand for high-end passenger vehicles.

Global auto sales are expected to reach 86.8 million units in 2023, surpassing earlier estimates, and are projected to reach 90.2 million units in 2024, driven by improved supply chains and robust demand.

Considering these conducive trends, let’s analyze the fundamental aspects of the three Auto & Vehicle Manufacturers picks, beginning with the third choice.

Stock #3: 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.

Its 2.69x forward EV/Sales is 140.3% higher than the 1.12x industry average. Likewise, its 4.30x forward Price/Sales is 424.2% higher than the 0.82x industry average.

For the second quarter ended June 30, 2023, RIVN’s gross loss narrowed 41.5% year-over-year to $412 million. The company’s loss from operations narrowed 24.8% year-over-year to $1.29 billion. Its adjusted EBITDA loss narrowed 32.5% year-over-year to $881 million.

Additionally, RIVN’s adjusted net loss attributable to common stockholders narrowed 30.9% from the prior year quarter to $1.02 billion. Its adjusted net loss per share narrowed 33.3% from the prior year quarter to $1.08.

For the quarter ending September 30, 2023, RIVN’s EPS is expected to remain negative. Over the past year, the stock has declined 37.5% to close the last trading session at $19.64.

RIVN’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.

It has an F grade for Value, Stability, and Quality. It is ranked #46 out of 52 stocks in the Auto & Vehicle Manufacturers industry. To see RIVN’s Growth, Momentum, and Sentiment ratings, click here.

Stock #2: LCI Industries (LCII)

LCII manufactures and supplies components for the manufacturers of recreational vehicles (RVs) and adjacent industries in the United States and internationally. It operates in two segments, Original Equipment Manufacturers (OEM) and Aftermarket.

In terms of forward EV/Sales, LCII’s 1.06x is 5.8% lower than the 1.12x industry average. Its 0.75x forward Price/Sales is 8.40% lower than the 0.82x industry average.

On the other hand, its 26.46x forward non-GAAP P/E is 82.8% higher than the 14.48x industry average. Its 1.76x forward non-GAAP PEG is 25.4% higher than the 1.41x industry average.

LCII’s net sales for the second quarter that ended June 30, 2023, decreased 33.9% year-over-year to $1.01 billion. The company’s operating profit declined 74.8% year-over-year to $55.17 million.

Its net income declined 78.4% year-over-year to $33.43 million. Also, its net income per share came in at $1.31, representing a decrease of 78.4% year-over-year. In addition, its adjusted EBITDA declined 64.8% year-over-year to $88.22 million.

Street expects LCII’s EPS and revenue for the quarter ended September 30, 2023, to decrease 43.6% and 11.5% year-over-year to $1.35 and $1 billion, respectively. The stock has gained 24.4% year-to-date to close the last trading session at $114.99.

LCII’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, equating to a Neutral in our proprietary rating system.

It has a C grade for Value and Momentum. Within the same industry, it is ranked #36. In total, we rate LCII on eight different levels. Beyond what we stated above, we also have given LCII grades for Growth, Stability, Sentiment, and Quality. Get all the LCII ratings here.

Stock #1: Rolls-Royce Holdings plc (RYCEY)

Headquartered in London, the United Kingdom, RYCEY operates as an industrial technology company in the United Kingdom and internationally. The company operates in four segments: Civil Aerospace, Defence, Power Systems, and New Markets.

On September 27, 2023, RYCEY announced the successful first fuel burn of a new small gas turbine designed for hybrid-electric flight. The engine utilizes novel combustion technology for ultra-low emissions and will be integrated into a lightweight turbogenerator system for Advanced Air Mobility (AAM) applications, including eVTOL and eSTOL aircraft for Urban Air Mobility (UAM).

Matheu Parr, Customer Director, Electrical at RYCEY, highlighted the fast-paced development of the new gas turbine, from concept to ‘pass to test’ in under 2 years. He emphasized that the turbogenerator system will expand electric flight routes and enable more passengers to travel longer distances on low or potentially net-zero emissions aircraft.

In terms of forward non-GAAP PEG, RYCEY’s 0.43x is 73.7% lower than the 1.63x industry average. Its 1.42x forward EV/Sales is 14.6% lower than the 1.67x industry average. Likewise, its 9.31x forward EV/EBITDA is 15.5% lower than the 11.01x industry average.

RYCEY’s revenue for the half year ended June 30, 2023, increased 30.9% year-over-year to £6.95 billion ($8.52 billion). Its gross profit rose 60.8% year-over-year to £1.52 billion ($1.86 billion). The company’s operating profit rose 438.4% year-over-year to £673 million ($824.91 million).

Its profit after taxation came in at £404 million ($495.19 million), compared to a loss after taxation of £188 million ($230.44 million) in the year ago period. Furthermore, its earnings per share came in at £4.90, compared to a loss per share of £2.24 in the year ago period.

RYCEY’s EPS and revenue for the fiscal year ending December 31, 2023, are expected to increase 314% and 17.3% year-over-year to $0.10 and $17.90 billion, respectively. Over the past year, the stock has gained 220.7% to close the last trading session at $2.58.

RYCEY’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It is ranked #7 in the Auto & Vehicle Manufacturers industry. It has a B grade for Growth, Value, and Momentum. Click here to see RYCEY’s Stability, Sentiment, and Quality ratings.

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RYCEY shares were trading at $2.60 per share on Wednesday afternoon, up $0.02 (+0.78%). Year-to-date, RYCEY has gained 142.99%, versus a 14.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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