The automotive sector is flourishing as a result of strong demand for new vehicles, the easing of supply chains, the transition to battery electric vehicles (BEVs), the availability of sufficient inventory, and falling inflation.
Considering this backdrop, Mazda Motor Corporation (MZDAY) could be a solid portfolio addition, while keeping Ford Motor Company (F) on one’s watchlist could be wise. On the other hand, Fisker Inc. (FSR) can be best avoided, given its poor growth prospects.
However, let's examine the factors influencing the car industry's future before delving deeper into the fundamentals of these stocks.
Despite challenges, including elevated inflation, scarcity of semiconductors, and escalating loan rates, the automotive sector accomplished greater success than the previous year. It is anticipated that sales of light vehicles will reach 89.3 million worldwide this year, a 10% rise from the previous year. Furthermore, it is anticipated that sales of light vehicles will increase by 3% globally to 92.3 million units next year.
Furthermore, the global automotive market is expected to increase at a 6.9% CAGR to reach $6.07 trillion by 2030. Advances in autonomous driving technology and growing consumer interest in electric vehicles (EVs) are responsible for this growth.
Global market turbulence and economic uncertainty, however, can affect consumer confidence and purchasing power. The car industry is also quite competitive, with new players constantly entering the market. Strong competition can put pressure on profit margins and make differentiation and innovation necessary at all times.
Amid the industry trends, let’s evaluate which of these stocks is a buy, sell, or hold.
Stock to Buy:
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY manufactures and sells passenger cars and commercial vehicles in Japan, China, North America, Europe, and internationally.
In terms of forward EV/Sales, MZDAY’s 0.16x is 87.6% lower than the 1.27x industry average. Its 2.02x forward EV/EBITDA is 80.1% lower than the 10.15x industry average. Likewise, its 2.84x forward EV/EBIT is 80.3% lower than the 14.41x industry average.
For the second quarter that ended September 30, 2023, MZDAY’s net sales increased 41.1% year-over-year to ¥2.32 trillion ($16.42 billion). Its operating income increased 134.6% over the prior-year quarter to ¥129.61 billion ($918.25 million). The company’s net income attributable to owners of the parent increased 25.9% year-over-year to ¥108.13 billion ($766.08 million). Its EPS came in at ¥171.49, registering an increase of 25.9% over the prior year quarter.
Street expect MZDAY’s revenue for the fiscal quarter ending December 31, 2023 to increase 2.9% year-over-year to $8.25 billion.
Over the past year, the stock has gained 43.4% to close the last trading session at $5.30.
MZDAY’s POWR Ratings reflect its solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B for Stability and Quality. It is ranked #3 out of 52 stocks in the Auto & Vehicle Manufacturers industry. To access MZDAY’s Growth, Momentum, and Sentiment ratings, click here.
Stock to Hold:
Ford Motor Company (F)
F develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue; Ford Model E; and Ford Pro; Ford Next; and Ford Credit segments.
On December 7, F and Resideo Technologies announced the “EV-Home Power Partnership,” a joint simulation project exploring vehicle-to-home (V2H) energy management. This initiative aims to assess the potential of electric vehicle batteries, specifically the F-150 Lightning, to enhance home energy management.
In terms of forward non-GAAP P/E, F’s 6.64x is 59.3% lower than the 16.29x industry average. Its 0.30x forward Price/Sales is 68.5% lower than the 0.94x industry average. Likewise, its 3.65x forward Price/Book is 58.8% lower than the 2.70x industry average.
For the third quarter ended September 30, 2023, F’s total revenues increased 11.2% year-over-year to $43.80 billion. Its adjusted net income increased 27.4% year-over-year to $1.34 billion. The company’s adjusted EPS came in at $0.39, representing an increase of 30% year-over-year.
Yet, its total liabilities equity came in at $268.07 billion, compared to $2.46 billion as of December 31, 2022.
Analysts expect F’s EPS for the quarter ending December 31, 2023, to decrease 72.2% year-over-year to $0.14. Its revenue for the fiscal quarter ending March 31, 2024 is expected to rise 11.6% year-over-year to $43.60 billion.
While the stock has gained 19.3% over the past month, it has declined 14.4% over the past six months to close the last trading session at $12.34.
F’s POWR Ratings reflect uncertainty. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It has a C grade for Growth, Momentum and Quality. It is ranked #35 out of 52 stocks in the same industry.
To access F’s ratings for Value, Stability, and Sentiment, click here.
Stock to Sell:
Fisker Inc. (FSR)
FSR develops, manufactures, markets, leases, or sells electric vehicles. It operates through three segments: The White Space, The Value Segment, and The Conservative Premium segments. The company also offers asset-light automotive business. In addition, it offers FSR flexible platform agnostic design, a process that develops and designs electric vehicles in specific segment size.
In terms of forward EV/Sales, FSR’s 3.14x is 146.9% higher than the 1.27x industry average. Likewise, its 1.37x forward Price/Sales is 44.7% higher than the 1.37x industry average.
FSR’s loss from operations for the fiscal third quarter ended September 30, 2023, came in at $99.57 million while its net loss came in at $90.96 million. It’s net loss per share stood at $0.27.
Additionally, its total current liabilities came in at $871.97 million, compared to $330.88 million as of December 31, 2022.
FSR’s EPS for the fiscal quarter ending December 31, 2023 is expected to come in at a negative $0.14, while EPS for the current fiscal year is estimated to come in at a negative $1.11.
The stock has declined 79.2% year-to-date to close the last trading session at $1.51.
FSR’s poor fundamentals are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has a D grade for Value and a F for Stability, Sentiment and Quality. It has a #49 rank out of the 52 stocks in the Auto & Vehicle Manufacturers industry.
Click here to see FSR’s additional rating for Growth and Momentum.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
F shares were trading at $12.25 per share on Friday afternoon, down $0.09 (-0.73%). Year-to-date, F has gained 16.39%, versus a 25.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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