In this article, I have evaluated prominent auto stocks, Rivian Automotive, Inc. (RIVN) and REV Group, Inc. (REVG), to determine which could generate better returns. After thoroughly evaluating these stocks, I think that REVG might be a superior choice for the reasons discussed in this article.
The global automotive market is a large and diverse industry that includes making, selling, and distributing cars, trucks, and motorcycles. Increasing demand for high-end passenger vehicles, and urbanization and rising infrastructure spending in the economy are driving the automotive market growth.
The automotive industry is projected to grow at a CAGR of 6.9% until 2023.
Moreover, US new car sales soared in the third quarter, despite high prices and rising interest rates. In October, U.S. new vehicle sales reached 1,211,141 units, increasing 2% year-over-year, propelled by a rising demand for electric vehicles (EVs) and the economic recovery.
REVG is a clear winner in terms of price performance as RIVN has declined 24.4% over the past three months as compared to REVG’s 9.6% gain. Also, RIVN declined 48.2% over the past year compared to REVG’s 7.1% gain.
Here are the reasons why I think REVG might perform better in the near term:
Recent Developments
On November 7, 2023, RIVN announced that it would enable other companies to purchase its custom-designed Rivian Commercial Van. This move provides companies all around the world more opportunity to electrify their delivery fleets with a state-of-the-art vehicle, which will help to further reduce CO2 emissions.
Conversely, on September 25, 2023, REVG announced strong show results at America’s largest RV show in Hershey, Pennsylvania. From September 13 – 17, 2023, customers were able to order and purchase new units from brands including Fleetwood RV, Holiday Rambler, American Coach, Renegade RV, Midwest Automotive Designs, and Lance.
Recent Financial Results
RIVN’s revenues for the third quarter ended September 30, 2023, rose 149.4% year-over-year to $1.34 billion. However, the company’s adjusted net loss attributable to common stockholders came in at $1.13 billion. Also, its adjusted net loss per share attributable to common stockholders came in at $1.19 and adjusted EBITDA came in at $942 million.
On the contrary, during the fiscal third quarter that ended July 31, 2023, REVG’s net sales increased 14.3% year-over-year to $680 million. During the same quarter, the company’s adjusted EBITDA and adjusted net income came in at $39.4 million and $20.90 million, up 33.6% and 46.2% year-over-year, respectively. Also, its adjusted net income per common share grew 50% from the prior-year quarter to $0.36.
Past and Expected Financial Performance
Over the past year, RVIN’s revenue grew at a CAGR of 260.5%. Analysts expect RVIN’s revenue to grow by 165% this year and 91.4% in the fourth quarter ending December 2023. However, its EPS is expected to be negative $4.87 this year, negative $1.31 in the current quarter ending December 2023 and negative $1.03 in the next quarter ending March 2024.
Conversely, REVG’s revenue has increased at a CAGR of 11.8% over the past year. Its revenue is expected to increase 12% this year and 6.8% in the fourth quarter ended October 2023. Its EPS is expected to be $1.17 this year and $0.34 in the to-be-reported quarter ended October 2023 and $0.19 in the current quarter ending January 2024.
Valuation
RVIN’s forward P/S multiple of 3.69 is higher than REVG’s 0.35. Additionally, RVIN’s forward EV/Sales of 2.35x is higher than REVG’s 0.43x.
Thus, REVG is relatively more affordable.
Profitability
RVIN's trailing-12-month gross profit margin of negative 64.09% is lower than REVG’s 11.19%. In addition, RVIN’s trailing-12-month EBITDA margin of negative 134.51% is lower than REVG’s 3.83%.
Thus, REVG is more profitable.
POWR Ratings
RVIN has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, REVG has an overall rating of A, translating to a Strong Buy. 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 distinct categories. RIVN has a F grade for Quality. Its trailing-12-month asset turnover ratio of 0.21x is 78.6% lower than the industry average of 1x.
On the other hand, REVG has a B grade in Quality. Its trailing-12-month asset turnover ratio of 1.89x is 136.7% higher than the industry average of 0.80x.
Among the 52 stocks in the Auto & Vehicle Manufacturers industry, RVIN is ranked #45, while REVG is ranked #3.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, and Sentiment. Get all RVIN ratings here. Click here to view REVG ratings.
The Winner
The global automotive industry is seeing growth amid rapid urbanization and increasing demand. Industry players such as RIVN and REVG are well-positioned to benefit from these industry tailwinds.
However, RIVN's poor profitability and elevated valuation multiples makes its competitor REVG the better buy.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers here.
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REVG shares were trading at $14.91 per share on Wednesday morning, down $0.00 (0.00%). Year-to-date, REVG has gained 19.48%, versus a 20.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
Rivian Automotive (RIVN) vs. REV Group (REVG): Evaluating the Better Auto Stock Buy StockNews.com
