Given its steady growth, electric vehicle (EV) giant Tesla, Inc. (TSLA) has secured a position in many investors’ portfolios. However, the stock has plunged 14.9% year-to-date to close its last trading session at $299.68. In addition, the stock is currently trading at a premium valuation.
TSLA’s forward Price/Sales multiple of 11.02x is 1113.8% higher than the industry average of 0.91x. Also, in terms of its forward Price/Book, the stock is trading at 22.16x, 792.5% higher than the industry average of 2.48x.
On the other hand, headquartered in Wolfsburg, Germany, automotive giant Volkswagen AG’s (VWAGY) shares jumped nearly 3% last week after it reaffirmed plans to pursue a sizable initial public offering of shares in the Porsche AG sportscar company.
In a statement issued, VWAGY stated that its supervisory board intended to list the shares on the Frankfurt Stock Exchange either at the end of this month or at the start of October. Just 12.5% of Porsche shares will be made available to private investors as part of VWAGY's public listing.
Analyst estimates suggest that the offering could value Porsche at between 60 billion and 85 billion euros, or between $59.8 and $84.6 billion, and inject new funds into VWAGY's coffers, which executives claim will help the company finance its switch to electric and self-driving cars.
Moreover, with governments worldwide focusing on emission reduction initiatives and green energy infrastructure development, the EV market has grown significantly in recent years.
We think VWAGY could be a better investment than TSLA at the moment, given its ability to better capitalize on the industry tailwinds and survive the challenges.
Here's what could shape VWAGY's performance in the near term:
Robust Financials
For the six months ended June 30, 2022, VWAGY's sales revenue increased 2% year-over-year to €132.29 billion ($132.91 billion). Its operating income increased 12.9% year-over-year to €12.83 billion ($12.88 billion). The company's earnings grew 27% from the year-ago value to €10.29 billion ($10.35 billion), while its EPS grew 27.1% from the prior-year quarter to €20.51.
Impressive Growth Prospects
Street expects VWAGY's revenues to rise 7.8% year-over-year to $300.64 billion in fiscal 2023. In addition, VWAGY's EPS is expected to rise at a 5.1% CAGR over the next five years.
Discounted Valuation
In terms of Price/Sales, the stock is currently trading at 0.27x, 70.5% lower than the industry average of 0.91x. Also, its forward EV/Sales of 0.91x is 18.5% lower than the industry average of 1.12x. Moreover, VWAGY's trailing-12-month Price/Book of 0.43x is 80.2% lower than the industry average of 2.17x.
POWR Ratings Reflect Solid Prospects
VWAGY has an overall grade of A, equating to a Strong Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. VWAGY has an A grade for Sentiment and Value. The analysts' earnings and revenue growth estimates are consistent with the Sentiment grade. In addition, the company's lower-than-industry valuations multiples are in sync with the Value grade.
Of the 65 stocks in the D-rated Auto & Vehicle Manufacturers industry, VWAGY is ranked #2.
Beyond what I stated above, we have graded VWAGY for Quality, Growth, Stability, and Momentum. Get all VWAGY ratings here.
Bottom Line
VWAGY is expected to benefit significantly from the growing adoption of EVs as the company continues to make significant investments in EV manufacturing, R&D, and battery technology. In addition, given the favorable analyst estimates and discounted valuation, we think the stock could be a great addition to your portfolio now.
How Does Volkswagen AG (VWAGY) Stack Up Against its Peers?
VWAGY has an overall POWR Rating of A, which equates to a Strong Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: Stellantis N.V. (STLA), Daimler AG (DDAIF), and Subaru Corporation (FUJHY).
VWAGY shares were trading at $20.05 per share on Monday afternoon, up $1.52 (+8.18%). Year-to-date, VWAGY has declined -29.51%, versus a -12.94% 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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