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Is Foresight Autonomous Holdings a Good Auto Parts Stock to Own?

The shares of sensor system manufacturer Foresight Autonomous Holdings Ltd. (FRSX) have suffered a significant price decline over the past few months. Current challenges faced by the automotive sector are casting a pall over the company’s growth prospects. In addition, given the company’s unstable financials and weak profitability, the question is will the stock be able to rebound in the near term? Read ahead to learn more.

Headquartered in Israel, Foresight Autonomous Holdings Ltd. (FRSX) designs, develops, and commercializes sensor systems for the automobile sector. It produces in-line-of-sight vision systems and beyond-line-of-site cellular-based applications. In addition, it has a strategic collaboration with FLIR Systems, Inc. to develop, market, and sell the QuadSight vision system.

The company's shares have declined 40.2% in price over the past six months and 8.3% over the past month to close yesterday’s trading session at $2.98. Furthermore, FRSX is currently trading lower than its $3.05 and $4.94 respective 50-day and 200-day moving averages, which indicates a downtrend.

The prospects for the semi-autonomous and autonomous vehicle sector appear promising with the continued electrification of vehicles. However, current challenges confronting the automotive industry could curb FRSX’s growth this year and beyond. In addition, the company’s poor fundamentals and growth prospects could make matters worse.

Here’s what could influence FRSX’s performance in the coming months:

Supply Chain Issues Can Dampen Growth

The auto sector has been hampered by a computer chip shortage for some time now. Furthermore, continuing supply chain bottlenecks and workforce shortages are making it even more difficult for companies to meet demand. Logistical issues. such as a scarcity of ships, shipping containers, and truck drivers are delaying auto-shipments, forcing plants to shut down. Carmakers' efforts to recover from last year's pandemic lockdowns and shift to developing electric vehicles (EVs) have been stymied by supply chain concerns.

So long as supply chain concerns persist and production cuts in the automobile sector continue, the growth of companies operating in the auto parts industry might be hamstrung.

Inadequate Financials and Weak Profitability

For the second quarter, ended June 30, 2021, FRSX’s non-GAAP operating loss increased 36.2% year-over-year to $2.74 million. Its non-GAAP net loss came in at $2.66 million. The company’s net cash used in operating activities grew 57.1% from its year-ago value to $3.97 million. In addition, its cash and cash equivalents declined 38.7% to $23.75 million for the six months ended June 30, 2021.

Its trailing-12-month ROC and ROA are negative 22.8% and 26.2%, respectively. Furthermore, FRSX’s trailing-12-month cash from operations stood at a negative $425.92 million, versus the $208.78 million industry average.

Poor Growth Prospects

Analysts expect FRSX’s EPS to decline 328.6% in the current year and 300% next year. Also, the company’s EPS is expected to remain negative in the current year. Moreover, the company failed to beat the Street’s EPS estimates in two of the trailing four quarters.

Unfavorable POWR Ratings

FRSX has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. FRSX has a D grade for Stability and Growth. The stock’s 3.42 beta is in sync with the Stability grade. In addition, the company’s bleak growth prospects and poor financials in its last reported quarter justify the Growth grade.

The stock also has a C grade for Quality. Its weak profitability is consistent with this grade.

Of 65 stocks in the B-rated Auto Parts industry, FRSX is ranked #61.

Beyond what I’ve stated above, we have rated FRSX for Sentiment, Momentum, and Value. Get all FRSX ratings here.

Bottom Line

An ongoing labor crunch and supply bottlenecks have wreaked havoc on the automotive industry. This, in turn, has impacted the demand for companies operating in the auto-parts sector. FRSX stock has lost 27% in price so far this year. Furthermore, its mounting operational losses could cause its shares to tumble further in the coming months. Therefore, we think the stock is best avoided now.

How Does Foresight Autonomous Holdings Ltd (FRSX) Stack Up Against its Peers?

While FRSX has an overall POWR Rating of F, one  might want to consider looking at its industry peers, Compagnie Generale des Etablissements Michelin (MGDDY), Bridgestone Corporation (BRDCY), and LKQ Corporation (LKQ) which each has an overall A (Strong Buy) rating.

FRSX shares were trading at $2.97 per share on Thursday morning, down $0.01 (-0.34%). Year-to-date, FRSX has declined -27.21%, versus a 22.99% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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