The shares of one of the most popular electric vehicle (EV) manufacturers in China, NIO Inc. (NIO), have gained 241% in price over the past year owing to the growing adoption of EVs in China. However, the stock has lost momentum of late on reduced investor interest in Chinese stocks because of China’s regulatory crackdown on U.S.-listed Chinese stocks and its overvaluation amid a global semiconductor chip shortage.
The Nasdaq Golden Dragon China Index, which measures U.S.-listed Chinese stocks, has declined 22.2% over the past month because the Cyberspace Administration of China admonished ride-hailing giant Didi Global Inc. (DIDI) for breaching national security with its data management, thus causing investors to lose some faith in Chinese stocks. Consequently, NIO has declined 15.3% over the past month. Furthermore, NIO reported a 183% year-over-year increase in its net loss to $744.10 million for its fiscal first quarter despite a surge in its vehicle deliveries. A current semiconductor chip supply crunch is expected to continue affecting NIO’s product deliveries in the coming quarters. Given the company’s weak growth potential, we think it looks overvalued at its current price level. NIO’s 12.57x forward Price/Sales is 881.9% higher than the 1.28x industry average. NIO closed yesterday’s session at $41.84, which is 37.5% lower than its 52-week high.
While the semiconductor chip shortage is putting pressure on automobile companies worldwide, rising demand and better production capacity should drive growth for some of the global leaders in the space. We believe fundamentally sound auto manufacturers Volkswagen AG (VWAGY), Honda Motor Co., Ltd. (HMC), Isuzu Motors Limited (ISUZY), and Polaris Inc. (PII) are well-positioned to outperform the broader market in the near terms based on their latest developments. So, these stocks are better investments than NIO now.
Volkswagen AG (VWAGY)
VWAGY is a Germany-based company that manufactures and sells vehicles. The company operates through four segments—Passenger Cars; Commercial Vehicles; Power Engineering; and Financial Services. It offers economy and luxury automobiles, sports cars, trucks, and commercial vehicles.
VWAGY debuted Taigo, an SUV coupé, in the European market for the first time on July 29. With its trendy crossover body style, pioneering connectivity, and unrestricted suitability for everyday use, the five-seater car is expected to garner widespread acclaim across the industry in the coming months.
On July 13, 2021, VWAGY chose Gotion High-Tech Co., Ltd., a Chinese manufacturer of lithium batteries, as its technology partner to develop and industrialize the first generation of the Volkswagen unified cell concept for the volume segment at VWAGY’s Salzgitter factory in Germany. This partnership is likely to significantly reduce VWAGY’s battery complexity and costs, while boosting range and charging performance to make the electric car more attractive.
VWAGY’s sales revenue for its fiscal second quarter, ended June 30, 2021, increased 63.8% year-over-year to €67.29 billion ($79.81 billion). The company’s operating profit has been reported at €6.55 billion ($7.76 billion), compared to a €2.39 billion ($2.84 billion) loss in the prior-year period. Its net earnings came in at €5.04 billion ($5.98 billion), versus a €1.54 billion ($1.82 billion) loss in the year-ago period. VWAGY’s EPS has been reported at €9.70 ($11.53), compared to a loss per share of €3.23 ($3.84) in the prior-year period. The company had €40.86 billion ($48.58 billion) in cash and cash equivalents as of June 30, 2021.
Analysts expect the stock’s EPS to increase 212.8% for the current year to $6.28. The $296.44 billion consensus revenue estimate for the current year represents a 10.2% gain from the prior-year period. The stock has gained 100.9% over the past nine months and 53% over the past six months. It closed yesterday’s trading session at $33.33.
In terms of forward EV/Sales, VWAGY is currently trading at 1.15x, which is 25.1% lower than the 1.53x industry average. In terms of forward Price/Sales, VWAGY is currently trading at 0.40x, which is 68.6% lower than the 1.29x industry average.
VWAGY’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth, and a B grade for Value and Stability. Click here to see the additional ratings for VWAGY (Quality, Sentiment, and Momentum).
VWAGY is ranked #4 of 57 stocks in the Auto & Vehicle Manufacturers industry.
Click here to check out our Automotive Industry Report for 2021
Honda Motor Co., Ltd. (HMC)
Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, and power products worldwide. The company also sells spare parts and provides after-sale services through retail dealers directly and independent distributors and licensees.
On June 11, 2021, HMC announced Ashirase, Inc., the first business venture to originate from IGNITION, HMC’s new business creation program. Ashirase is currently developing an in-shoe navigation system consisting of a smartphone app and a 3D vibration device, including a motion sensor attached inside the shoe, to support the visually impaired in walking. Hoping to begin sales of Ashirase before the end of its fiscal year 2023, HMC is likely to witness good sales.
On June 10, HMC and Komatsu Ltd. signed a basic agreement and began joint development to electrify Komatsu micro excavators using HMC’s Honda Mobile Power Pack (MPP) and establish a battery-sharing system for the civil engineering and construction industry. In addition to reducing noise and exhaust heat significantly, electrification of the micro excavator will reduce its environmental impact by releasing zero exhaust gas emission, which enables users to work comfortably in various indoor and outdoor work environments. Both companies expect to see good demand for this product in the coming months.
For its fiscal fourth quarter, ended March 31, 2021, HMC’s sales revenue increased 4.8% year-over-year to ¥3.62 trillion ($33 billion). The company’s operating profit came in at ¥213.21 billion ($1.94 billion), versus a ¥5.62 billion ($51.15 million) loss in the prior-year period. HMC’s net profit has been reported at ¥223.55 billion ($1.94 billion), compared to a ¥21.52 billion ($196 million) loss. Its EPS came in at ¥123.55 ($1.13), versus a ¥17.01 ($0.16) loss per share. As of March 31, 2021, the company had ¥2.76 trillion ($250 million) in cash and cash equivalents of Analysts expect HMC’s revenue to improve 385% year-over-year for the current year, to $137.20 billion. The stock has gained 36.8% over the past nine months and 18.1% over the past six months. It ended yesterday’s trading session at $31.83.
In terms of forward EV/Sales, HMC’s 0.75x is 51.1% lower than the 1.53x industry average. In terms of forward Price/Sales, HMC is currently trading at 0.40x, which is 69.2% lower than the 1.29x industry average.
It’s no surprise that HMC has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has an A grade for Value, and a B grade for Stability, Sentiment, and Growth. Click here to see the additional ratings for HMC (Quality and Momentum).
HMC is ranked #1 in the Auto & Vehicle Manufacturers industry.
Isuzu Motors Limited (ISUZY)
ISUZY is a Japan-based company that manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide.
On July 29, 2021, ISUZY agreed with Hino Motors, Ltd., a Japanese manufacturer of commercial vehicles and diesel engines, on OEM supply for the Isuzu N-series light-duty diesel trucks for the North American market. Rising demand for trucks due to the re-engagement of economic activities should enable the companies to capitalize on surging demand now.
On June 8, ISUZY, Hino Motors, Ltd., and Toyota Motor Corporation’s (TM) Woven Alpha, Inc., agreed to explore the Automated Mapping Platform (AMP) developed by Woven Alpha. AMP is a connected crowdsourced software platform that provides high-precision data-driven maps. Its HD map includes data-rich information regarding road objects and topography that delivers an accurate and updated representation of the road. To realize smarter and safer logistics through automated driving and advanced driver assistance (ADAS) using HD maps, ISUZY and Hino will examine the potential application of AMP in the small commercial-purpose trucks domain.
ISUZY’s total comprehensive income for its fiscal year ended March 31, 2021, increased 54.2% year-over-year to ¥104.10 billion ($947.64 million). The company had $386.67 billion in cash and cash equivalents as of March 31, 2021.
For the current quarter, ending September 30, 2021, analysts expect ISUZY’s revenue to be $5.72 billion, representing a 27% rise from the prior-year period. ISUZY has rallied 61.7% over the past nine months and 24.4% over the past three months. It ended yesterday’s trading session at $12.89.
In terms of forward EV/Sales, ISUZY is currently trading at 0.48x, which is 69.1% lower than the 1.54x industry average. In terms of forward Price/Sales, ISUZY is currently trading at 0.44x, which is 65.7% lower than the 1.28x industry average.
ISUZY’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, Quality, and Value. We have also graded ISUZY for Stability, Sentiment, and Momentum. Click here to access all ISUZY ratings.
ISUZY is ranked #6 in the Auto & Vehicle Manufacturers industry.
Polaris Inc. (PII)
PII designs, engineers, manufactures, and markets power sports vehicles and related parts and accessories through dealers, distributors, and e-commerce sites worldwide. The company offers off-road vehicles (ORVs), including all-terrain vehicles and side-by-side vehicles; snowmobiles and snow bikes conversion kit systems; motorcycles; and low emission, light-duty hauling, passenger, and industrial vehicles. PII is based in Medina, Minn.
On June 22, 2021, PII’s Indian Motorcycle, America’s First Motorcycle Company, announced new rental locations throughout the United States and Canada. “As stay-at-home restrictions from the past year contributed to a surge within motorcycling, we’re excited to offer more ways for riders to experience what Indian Motorcycle has to offer,” said Aaron Jax, Vice President, Indian Motorcycle.
PII’s adjusted sales for its fiscal second quarter ended June 30, 2021, increased 40.2% year-over-year to $2.12 billion. The company’s adjusted gross profit was $553.10 million, up 59.2% from the prior-year period. Its adjusted pre-tax income has been reported at $221.50 million, representing a 119.1% year-over-year improvement. While its net earnings increased 109.4% year-over-year to $169.40 million, its adjusted EPS increased 107.7% year-over-year to $2.70. The company had $288.80 million in cash and cash equivalents as of June 30, 2021.
A $9.51 consensus EPS estimate for the current year represents a 22.9% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $8.50 billion consensus revenue estimate for the current year represents a 21% rise from the prior-year period. Analysts expect the stock’s EPS to grow at a 15% rate per annum over the next five years.
PII has gained 39.3% over the past nine months and 9.4% over the past six months. It closed yesterday’s trading session at $128.72.
In terms of forward EV/Sales, PII is currently trading at 1.08x, which is 29.9% lower than the 1.54x industry average. In terms of forward Price/Sales, PII is currently trading at 0.93x, which is 27.6% lower than the 1.28x industry average.
PII’s POWR Ratings reflect its solid prospects. PII has an A grade for Value, and a B grade for Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see PII’s ratings for Growth, Momentum, Sentiment, and Stability here.
PII is ranked #26 in the Auto & Vehicle Manufacturers industry.
VWAGY shares were trading at $33.55 per share on Thursday afternoon, up $0.22 (+0.68%). Year-to-date, VWAGY has gained 62.78%, versus a 18.79% 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.
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