Despite pioneering high-performance electric vehicles (EVs), Tesla, Inc. (TSLA) has experienced a slippage from its dominating position, facing stiff competition from established automakers and emerging challengers.
I believe fundamentally sound stocks Isuzu Motors Limited (ISUZY) and REV Group, Inc. (REVG) present better investment options than TSLA for reasons discussed throughout this article.
TSLA faces intense competition, primarily from rising Chinese manufacturers and long-established Western automotive giants. To counterbalance this competition and enhance affordability amid climbing borrowing costs for potential buyers, TSLA has implemented multiple price cuts across the US, China, and other global markets since late last year. This proactive strategy includes escalated discount offers and incentives to minimize inventory levels.
Also, TSLA’s CEO, Elon Musk’s comments about possible future price reductions contribute further to investor unease. These statements infuse uncertainty and provoke questions regarding TSLA's financial stability and profitability prospects.
Industry experts suggest Musk's strategies could potentially undermine profit margins, especially as the corporation faces ongoing investigation by US safety regulators owing to numerous crash incidents involving TSLA models.
Nevertheless, TSLA plans to invest over $1 billion in Project Dojo, a state-of-the-art supercomputer custom-built for neural net training and real-world dataset handling. The emerging artificial intelligence startup, xAI, with a goal of 'understanding the universe,’ would be closely working with TSLA’s silicon chip team and AI software programmers.
Meanwhile, TSLA registered record deliveries of 466,140 units during the fiscal second quarter that ended June 30, 2023, while its revenue reached $24.93 billion, up 47.2% year-over-year. Despite this robust growth, there was a notable decrease in the company's automotive gross margin to 19.2% from 27.9% a year ago, with its overall gross margin dwindling to 18.2% from 25%.
Simultaneously, TSLA trades at a considerably premium value compared to its competitors. TSLA’s forward EV/Sales of 8.25x is 594.3% higher than the 1.19x industry average. Its forward Price/Sales multiple of 8.41 is 831.6% higher than the industry average of 0.90.
Despite these uncertainties, the imminent launch of TSLA’s Cybertruck, a futuristic-looking pickup slated for market introduction by year-end, may position the company favorably within one of the most lucrative segments of the U.S. auto market, offering a potential buffer against downside risks.
The market’s strong rebound from supply-chain restrictions over the past two years is expected to raise the annual new-vehicle sales in July 2023 to 15.9 million, an increase of 2.6 million from July 2022. S&P Global Mobility projects new US light vehicle sales volume to surge 18% year-over-year to 1.33 million units by July 2023.
Anticipated for further expansion this year, EV sales are propelled by price reductions, government funding, rapid evolution of charging infrastructure, and significant tax credits. Driven by these factors, the global automotive market is poised to reach $6.07 trillion by 2030 at a CAGR of 6.9%.
Considering the long-term industry prospects, investments in auto stocks ISUZY and REVG could yield better returns than TSLA. Let's explore these alternatives and their fundamentals in detail.
Isuzu Motors Limited (ISUZY)
ISUZY, headquartered in Tokyo, Japan, manufactures and sells commercial vehicles, light-duty trucks, diesel engines, and components worldwide. Its product portfolio includes heavy-duty trucks, buses, pickup trucks, tractors, and SUVs. The company also offers maintenance services, leasing, and part manufacturing.
The company’s year-end dividend was ¥43 per share, an increase of ¥7 from the previous forecast due to higher-than-expected net income. The annual dividend, including the interim dividend, is ¥79 per share. The annual dividend translates to a 4.54% yield on the current share price.
Its four-year average dividend yield is 3.62%. The company’s dividend payouts have grown at a CAGR of 16.7% over the past three years and 4.3% over the past five years.
In terms of forward EV/Sales, ISUZY is trading at 0.51x, which is 57% lower than the 1.19x industry average. Also, its forward EV/EBITDA multiple of 4.74 is 51.8% lower than the industry average of 9.82.
ISUZY’s net sales increased 27.1% year-over-year to ¥3.20 trillion ($22.73 billion) for the fiscal year that ended March 31, 2023. Its operating income rose 35.4% year-over-year to ¥253.55 billion ($1.80 billion). Also, profit attributable to owners of the parent stood at ¥151.74 billion ($1.08 billion), a 20.2% increase year-over-year, while its net income per share came in at ¥195.75.
As of March 31, 2023, the company’s total current assets stood at ¥1.70 trillion ($12.11 billion), compared to ¥1.49 trillion ($10.60 billion) as of March 31, 2022.
The consensus revenue estimate of $6.10 billion for the fiscal second quarter ending September 2023 reflects an 11% year-over-year improvement. Also, ISUZY’s revenue for the fiscal year ending March 2024 is expected to grow 155.8% year-over-year to $24.63 billion. Moreover, the company topped its consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 17.9% over the past year to close the last trading session at $12.96. Over the past three months, the stock gained 14.4%.
ISUZY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ISUZY has an A grade for Value and a B for Stability and Quality. It is ranked #9 in the 55-stock Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings we’ve just highlighted, one can see ISUZY’s additional ratings for Growth, Sentiment, and Momentum here.
REV Group, Inc. (REVG)
REVG designs, manufactures, and distributes specialty vehicles and related aftermarket parts and services. The company’s customized vehicle solutions cater to diverse applications, such as essential needs for public services, commercial infrastructure, and consumer leisure.
On May 25, REVG’s subsidiary, ElDorado National (California) or ENC, secured an order for 19 Axess EVO-FC hydrogen fuel cell buses from California public transit provider Foothill Transit. This would help transit authorities across the country operate more sustainably and should also bode well for the company.
The company’s board of directors declared a quarterly dividend of $0.05 per share of common stock, paid to shareholders on July 14, 2023. Its annualized dividend rate of $0.20 per share yields 1.52% on prevailing prices. REVG’s four-year average dividend yield is 1.54%.
Also, on June 1, the company’s board of directors approved the repurchase of up to $175 million of the company’s outstanding common stock.
In terms of forward EV/Sales, REVG is trading at 0.41x, 76.4% lower than the industry average of 1.79x. Its forward EV/EBITDA multiple of 8.25 is 26.3% lower than the 11.20 industry average.
During the fiscal second quarter that ended April 30, 2023, REVG’s net sales increased 18.2% year-over-year to $681.20 million. During the same quarter, the company’s adjusted EBITDA and adjusted net income came in at $41.90 million and $20.8 million, up 76.1% and 96.2% year-over-year, respectively. Also, its adjusted net income per common share grew 105.9% from the prior-year quarter to $0.35.
REVG’s total current assets stood at $924.40 million as of April 30, 2023, compared to $888.40 million as of October 31, 2022.
REVG’s revenue for the fiscal third quarter ending July 2023 is expected to increase 5.4% year-over-year to $627.17 million, while its EPS is expected to come at $0.23. The company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past year, the stock has gained 16.7% to close the last trading session at $13.04. Moreover, the stock gained 23.6% over the past three months.
REVG’s POWR Ratings reflect a positive outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Stability, Sentiment, and Quality. REVG is ranked #2 within the same industry.
Click here to see additional ratings for REVG (Momentum).
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TSLA shares were trading at $268.62 per share on Thursday morning, up $4.27 (+1.62%). Year-to-date, TSLA has gained 118.07%, versus a 21.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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