Headquartered in Gothenburg, Sweden, Volvo AB (VLVLY) delivers a wide variety of products and services, including trucks, buses, and construction equipment to provide power solutions for marine and industrial applications. Last December, the company announced the commercial introduction of its Volvo VNR electric truck model. The move thrust VLVLY to the forefront of the electrification of the North American trucking industry.
Volvo witnessed a 61.4% year-over-year increase in its orders in the fourth quarter (ended December 31, 2020). As a result, the stock has returned 28.8% over the past six months. The stock closed yesterday’s trading session at $26.06, which is more than double its 52-week low of $11.40.
Because the demand for its products and services are expected to increase in the near term—as the world continues to transition to a renewable energy driven future—we think it is wise to bet on VLVLY stock now.
Here are the factors that we think could influence VLVLY’s performance in the coming months:
New Business Area to Accelerate Electrification
VLVLY created a new business area—Volvo Energy—in January to strengthen its market position in the market for batteries and charging infrastructure that are used in electric vehicles (EVs). Commercial vehicle batteries are expected to be used for many years in a vehicle before replacement. So, their use will also help reduce fossil fuel usage.
Increasing Demand for Volvo Vehicles
Girteka Logistics, one of Europe’s leading logistics companies, invested in 2,000 of the latest generation of VLVLY’s FH trucks in February. The truck optimizes uptime and fuel efficiency. The trucks are expected to be delivered to Girteka Logistics this year. Lannutti Group, an Italian transport and logistics company, also ordered 1,000 Volvo FH trucks in February that are expected to be delivered by the company over the next two years. Andon February 15,the Chicago Transit Authority (CTA) approved the purchase of up to 600 new, 40-foot buses from Nova Bus, a subsidiary of Volvo Buses.
Building on its strategic alliance with Isuzu Motors Limited (ISUZY), VLVLY completed the UD Trucks transaction on April 1. This transaction is expected to have a positive impact on VLVLY’s operating income in its fiscal year 2021, second quarter. In late March, the company also signed a long-term partnership agreement with U.S.-based self-driving startup Aurora Innovation to jointly develop on-highway autonomous trucks. VLVLY also has a partnership with NVIDIA Corporation (NVDA) to develop commercial vehicles and machines.
In terms of forward price/sales ratio, VLVLY’s 1.13x is 28.9% lower than the industry average 1.59x. In terms of forward enterprise value/sales ratio, the stock’s 1.32x is also 33.7% lower than the industry average 1.99x. Also, its forward enterprise value/ebit of 12.79x is lower than the industry average 18.91x.
Favorable POWR Ratings
VLVLY has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.
Our proprietary rating system also evaluates each stock based on eight different categories. VLVLY has a B grade for Value, in sync with its lower-than-industry valuation ratios. It also has a B grade for Stability.
VLVLY has a B grade for Quality as well. This is consistent with its higher-than-industry trailing-12-month return on common equity of 13.6%, and trailing-12-month return on total assets of 3.8%.
In addition to the POWR Ratings grades we’ve just highlighted one can see VLVLY’s ratings for Growth, Momentum, and Sentiment here.
VLVLY is ranked #7 of 51 stocks in the B-rated Auto & Vehicle Manufacturers industry.
Click here to access 19 other top-rated stocks in the same industry.
VLVLY is undoubtedly one of the top players in an overcrowded EV market. It has been expanding its market reach, entering new strategic agreements, and increasing production of its vehicles to meet growing market demand. So, we think it’s wise to buy the stock now because it is trading at a discount to its peers.
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VLVLY shares were trading at $24.58 per share on Tuesday morning, down $0.23 (-0.93%). Year-to-date, VLVLY has gained 11.57%, versus a 9.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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