Auto giant Tesla, Inc. (TSLA) has lost 69.6% over the past year to close the last trading session at $110.34. Its forward EV/Sales multiple of 4.18 is substantially higher than the 1.12 industry average. Also, its forward Price/Sales multiple of 4.35, compared with the industry average of 0.86.
The automobile sector is poised for strong growth in the future years, fueled by growing digital integration and the rapid adoption of clean and sustainable technology.
Increased demand for electric vehicles, and the rapid adoption of advanced technologies, are propelling the industry forward. The automotive market in the United States is predicted to increase at a CAGR of 13.2% over the forecast period.
Therefore, investors looking to invest in auto stocks could consider buying fundamentally sound Volkswagen AG (VWAGY), General Motors Company (GM), and Honda Motor Company, Ltd. (HMC) instead of TSLA, which trades at a lofty valuation.
Volkswagen AG (VWAGY)
Headquartered in Wolfsburg, Germany, VWAGY manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific region. The company has four segments: Commercial Vehicles; Power Engineering; Financial Services; and Passenger Cars and Light Commercial Vehicles.
On November 1, VWAGY presented its new Green Finance Framework (GFF) to make investments in Green Debt Instruments issued by the company more attractive, transparent, and reliable for sustainability investors. This should strengthen the link between its decarbonization and financing strategy.
VWAGY has paid dividends for two consecutive years. Its four-year average dividend yield is 3.00%, and its current dividend translates to a 4.67% yield.
VWAGY’s sales revenue increased 24.2% year-over-year to €70.71 billion ($73.47 billion) for the fiscal third quarter. During the same period, the company’s operating result increased 64.5% year-over-year to €4.27 billion ($4.44 billion).
VWAGY’s forward EV/Sales of 0.87x is 22.6% lower than the industry average of 1.12x. Its forward Price/Sales of 0.23x is 73.7% lower than the industry average of 0.86x.
Street expects VWAGY’s revenue to increase 2.2% year-over-year to $302.50 billion in 2023. Its EPS is expected to increase marginally per annum for the next five years. Over the past three months, the stock has gained 10.8% to close the last trading session at $16.73.
VWAGY’s Strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating is a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VWAGY has an A grade for Value and a B for Growth, Stability, and Quality. Within the Auto & Vehicle Manufacturers industry, it is ranked #9 out of 62 stocks. Beyond what is stated above, we’ve also rated VWAGY for Momentum and Sentiment. Get all VWAGY ratings here.
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.
GM’s four-year average dividend yield is 2.11%, and its current dividend translates to a 1.04% yield.
GM’s total net sales came in at $41.89 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 forward EV/Sales of 0.93x is 17.2% lower than the industry average of 1.12x. Its forward Price/Sales of 0.32x is 62.3% lower than the industry average of 0.86x.
GM’s revenue is expected to increase by 3.7% year-over-year to $159.85 billion in 2023. Its EPS is expected to grow 15.7% per annum for the next five years. It surpassed EPS estimates in three of four trailing quarters. Over the past six months, the stock has gained 8.1% to close the last trading session at $35.
GM’s overall B rating equates to a Buy in our POWR Ratings system. It also has an A grade for Growth and a B for Value and Sentiment. The stock is ranked #18 in the Auto & Vehicle Manufacturers industry.
Click here to access the additional POWR Ratings for GM (Stability, Quality, and Momentum).
Honda Motor Company, Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. Its four segments are Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.
Over the last three years, HMC’s dividend payouts have grown at a 7.08% CAGR. While HMC’s four-year average dividend yield is 3.38%, its current dividend translates to a 7.54% yield.
HMC’s sales revenue came in at ¥4.26 trillion ($31 billion) for the quarter that ended September 30, 2022, up 25% year-over-year. Its operating profit came in at ¥231.20 billion ($1.69 billion), up 16.2% year-over-year. Moreover, its profit came in at ¥189.20 billion ($1.39 billion), up 13.6% year-over-year.
HMC’s forward EV/Sales of 0.55x is 50.7% lower than the industry average of 1.12x. Its forward Price/Sales of 0.30x is 65% lower than the industry average of 0.86x.
HMC’s revenue is expected to increase 385.3% year-over-year to $129.63 billion in 2023. Its EPS is expected to increase by 13.2% per annum for the next five years. Over the past three months, the stock has gained 2.8% to close the last trading session at $23.27.
HMC’s overall A rating equates to a Strong Buy in our POWR Ratings system. It has an A grade for Value and a B for Quality and Stability. The stock is ranked #5 in the same industry.
We’ve also rated HMC for Momentum, Sentiment, and Growth. Get all HMC ratings here.
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VWAGY shares were trading at $17.03 per share on Friday afternoon, up $0.30 (+1.79%). Year-to-date, VWAGY has gained 8.85%, versus a 1.57% 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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