Electric Vehicle (EV) giant Tesla, Inc. (TSLA) has had a remarkable run in 2020; the stock gained 537.3% over the past year. This was driven mainly by the increased demand for EVs as governments around the world took measures to cut automobile greenhouse gas emissions over the next few decades. The company was also added to the S&P 500 Index in December 2020.
However, TSLA’s low profitability has been a concern for some time, making the stock overvalued. In terms of non-GAAP forward p/e, TSLA’s 160.03x is 748.1% higher than the industry average 18.87x. In terms of forward price/sales, it is currently trading at 13.29x, which is 963.2% higher than the industry average 1.25x. The company also missed its consensus EPS estimate in the fourth quarter by 22.3%. And it is currently trading 25.8% below its 52-week high of $900.40.
Thus, we think investors should focus on relatively undervalued auto manufacturers that have the potential to perform better than TSLA in the near term. Daimler AG (DDAIF), Honda Motor Company, Ltd. (HMC), and Tata Motors Limited (TTM) are three such stocks.
Daimler AG (DDAIF)
Germany-based Daimler AG is an automotive engineering company. It develops, produces and distributes cars, trucks and vans. The company operates through five segments — Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler Buses and Daimler Financial Services. DDAIF also sells vehicle related spare parts and accessories.
The company’s Mercedes-EQ is expected to launch the all-electric luxury saloon EQS in a digital world premiere on the Mercedes me media online platform on April 15. On March 30, BP plc. (BP) joined forces with DDAIF in Digital Charging Solutions GmbH (DCS) to further extend and significantly improve electrification by making EV charging more convenient, simpler and seamless for drivers. The company also started selling its new Mercedes-Benz C-Class on that date. Also in March the Mercedes-AMG Petronas Formula One Team and Mercedes-EQ Formula E Team jointly announced TeamViewer as their new official partner.
For the fourth quarter ended December 31, 2020 the company’s unit sales increased 14.1% sequentially to 881,550 units. Mercedes-Benz Cars & Vans’ unit sales increased nearly 13% sequentially to 760,895 units. DDAIF’s revenue came in at €46.62 billion, which represents an improvement of 15.7% from its prior quarter. The company’s EBIT was €4.60 billion, up 1100.5% year-over-year. its EPS has increased 69.8% sequentially to €3.26.
Analysts expect DDAIF’s EPS to improve 194.5% year-over-year for the next quarter, ending June 30, to $2.07. It surpassed the Street’s EPS estimates in three of the trailing four quarters. And its consensus revenue estimate of $42.90 billion for the next quarter represents a 29.2% rise on a year-over-year basis. In terms of forward non-GAAP price/earnings, DDAIF is currently trading at 8.11x, which is 57% lower than the industry average 18.87x. In terms of forward enterprise value/ebitda, the stock is currently trading at 9.43x, 22.3% lower than the industry average of 12.13x.
The stock has gained 199.8% over the past year and closed yesterday’s trading session at $89.49.
It’s no surprise that DDAIF has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has an A grade for Growth, and a B grade for Value, Momentum, and Stability. Click here to see the additional POWR Ratings for DDAIF (Sentiment and Quality).
DDAIF is ranked #2 of 51 stocks in the B-rated Auto & Vehicle Manufacturers industry.
Honda Motor Company, Ltd. (HMC)
Based in Tokyo, Japan, HMC operates mainly through four segments—motorcycle, automobile, financial services, and the power product and other segments. Its automobiles use gasoline engines with three-, four- or six-cylinders, diesel engines, gasoline-electric hybrid systems and gasoline-electric plug-in hybrid systems. The company’s Motorcycle segment provides motorcycles, all-terrain vehicles (ATVs), and side-by-side vehicles, among others.
A new company named Thai Honda Manufacturing Co., Ltd. was formed on March 31 because of the amalgamation of A.P. Honda Co., Ltd., Thai Honda Manufacturing Co., Ltd., and HPD Co., Ltd. This amalgamation is expected to strengthen HMC’s motorcycle operations in Thailand. On the same date, the company announced that its Forza750 flagship scooter, Jazz, and Jazz Crosstar compact cars were named Red Dot winners in the Product Design category of the Red Dot Design Award. HMC also began the lease sales of its all-new Legend, equipped with Honda SENSING Elite, in Japan on March 5.
HMC’s total automobile production increased 110.2% year-over-year to 318,832 units for the month of February. For its fiscal third quarter ended December 31the company’s sales revenue from its automobile business came in at ¥2.64 trillion, which represents an improvement of 2.5% year-over-year. This was driven primarily driven by an increase in sales in Japan. Also, its operating profit came in at ¥277.74 billion, up 66.7% year-over-year.
The company’s EPS and revenue are expected to increase 36.2% and 11.4%, respectively, for the fiscal period ending March 31, 2022. HMC also surpassed consensus EPS estimates in three of the trailing four quarters. In terms of forward price/sales, HMC is currently trading at 0.44x, 64.8% lower than the industry average 1.25x. In terms of forward enterprise value/ebitda , its 11.22x is 7.5% lower than the industry average 12.13x.
The stock has rallied 34.5% over the past year to close yesterday’s trading session at $30.20.
HMC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system.
The stock also has an A grade for Value, and a B grade for Momentum, Growth, Stability, and Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see HMC’s ratings for Quality here.
HMC is ranked #1 in the same industry.
Tata Motors Limited (TTM)
Headquartered in Mumbai, India, TTM is a multinational automotive corporation engaged mainly in the business of automobile products, consisting of all types of commercial and passenger vehicles. It is also engaged in vehicle financing. The company operates through two segments — automotive operations and all other operations. While the automotive segment manufactures and sells passenger cars, utility vehicles, and light commercial vehicles, among others, its all-other operations segment includes mainly information technology (IT) services, machine tools and factory automation services.
Last Month, TTM launched an industry-first Ceramic Coating in house service with the all-new Safari. This will be provided at all its authorized dealerships. The company also signed a three-year memorandum of understanding (MoU) with the State Bank of India in March to offer unique financial assistance for the purchase of its range of small and light commercial vehicles. Also, TTM introduced its Magic Express patient transport ambulance on March 19. It is specifically designed for healthcare mobility.
The company’s total revenue from operations have increased 41.3% sequentially to ₹75.65 KCr for its fiscal 2020 third quarter ended December 31. TTM’s total comprehensive income was ₹6.49 KCr, which represents a nearly 91% improvement sequentially. The company’s profit from continuing operations was ₹3.33 KCr, up 64.9% year-over-year. Also, TTM’s EPS for Ordinary shares has increased 60.8% year-over-year to ₹8.04.
For the fiscal period ending March 31, 2022 analysts expect TTM’s revenue to be $42.82 billion, representing a 14.5% rise from the prior-year period. The stock’s EPS is also expected to grow 98.1% over the same period. In terms of forward enterprise value/sales ratio, TTM is currently trading at 0.74x, 55.2%, which is lower than the industry average 1.65x. In terms of forward enterprise value/ebitda , its 8.29x is 31.7% lower than the industry average 12.13x.
The stock has gained 340.5% over the past year to close yesterday’s trading session at $20.79. It has also gained 65% so far this year.
TTM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, Momentum, and Sentiment as well. We have also graded TTM for Stability and Quality. Click here to access all TTM’s ratings.
TTM is ranked #9 in the same industry.
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TSLA shares fell $1.75 (-0.26%) in after-hours trading Thursday. Year-to-date, TSLA has declined -6.22%, versus a 7.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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