The automobile industry is expanding and evolving with electric vehicles and autonomous driving technology. Automobile breakthroughs are transforming transportation and paving the way for a more sustainable future.
Therefore, it could be wise for investors to buy fundamentally sound auto stock PACCAR Inc (PCAR), which looks poised for steady returns. However, I think NIO Inc. (NIO) could be best avoided, given its weak financials.
NIO has been facing challenges in terms of its financial performance, including consistent losses and high debt levels. On the other hand, PCAR has shown strong financial stability and a solid track record in the auto industry. Therefore, considering these factors, investing in PCAR may offer better short-term returns compared to NIO.
In September, the number of new vehicles sold in the U.S. was 1,337,707 units, up 19% from September 2022. Automobile sales have increased due to rising demand, stronger economic conditions, appealing financing alternatives, and automaker incentives.
According to Insight Partners, the electric vehicle industry is predicted to reach $1.38 trillion by 2030, growing at a CAGR of 17.3%. With government support and initiatives to promote e-mobility, rising demand for eco-friendly transportation encourages market growth.
Furthermore, the global automotive market is projected to reach $6.07 trillion by 2030, expanding at a CAGR of 6.9%.
Stock to Buy:
PACCAR Inc (PCAR)
PCAR designs, manufactures, and distributes light, medium, and heavy-duty commercial trucks in the United States, Europe, Mexico, South America, Australia, and internationally. It operates through three segments: Truck; Parts; and Financial Services.
PCAR’s forward non-GAAP P/E multiple of 10.18 is 41.1% lower than the industry average of 17.27. Its forward EV/EBIT multiple of 10.68% is 29.3% lower than the industry average of 15.11.
PCAR’s trailing-12-month ROTA of 9.89% is 96.2% higher than the industry average of 5.04%. Its trailing-12-month ROTC of 12.46% is 83.5% higher than the 6.79% industry average.
PCAR’s net sales and revenue for the fiscal second quarter ended June 30, 2023, increased 24.4% year-over-year to $8.44 billion. Additionally, its net income and EPS rose 69.5% and 70.1% year-over-year to $1.22 billion and $2.33, respectively.
Also, PCAR’s total assets came in at $36.87 billion for the period that ended June 30, 2023, compared to $33.28 billion for the period that ended December 31, 2022.
The consensus revenue estimate of 32.73 billion for the year ending December 2023 represents a 19.8% increase year-over-year. Its EPS is expected to grow at 49.4% year-over-year to $8.59 for the same period. It surpassed EPS estimates in all the four trailing quarters. PCAR’s shares have gained 53.8% over the past year to close the last trading session at $87.44.
PCAR’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PCAR also has a B grade for Growth, and Quality. It is ranked #24 out of 53 stocks in the B-rated Auto & Vehicle Manufacturers industry. Click here for the additional POWR Ratings for Value, Stability, Sentiment, and Momentum for PCAR.
Stock to Sell:
NIO Inc. (NIO)
Headquartered in Shanghai, China, NIO engages in the research, development, and manufacturing of premium smart electric vehicles. The company is mainly engaged in the design, development, manufacture, and sales of high-end smart electric vehicles.
NIO’s forward EV/Sales multiple of 1.82 is 62.9% higher than the industry average of 1.12. Its forward Price/Sales multiple of 1.75% is 112.9% higher than the industry average of 0.82.
NIO’s trailing-12-month EBITDA margin of negative 38.36% is compared with the industry average of 10.93%. Its trailing-12-month EBIT margin of negative 44.83% is compared with the industry average of 7.36%.
In the quarter ended June 30, 2023, NIO’s total revenues decreased14.8% year-over-year to RMB8.77 billion ($1.19 billion) while its adjusted loss from operations increased 132% year-over-year to RMB5.46 billion ($746.79 million). In addition, its adjusted net loss attributable to ordinary shareholders of NIO grew 140.2% year-over-year to RMB5.45 billion ($745.42 million).
Also, its adjusted net loss per share attributable to ordinary shareholders increased 144.8% year-over-year to RMB3.28.
Street expects NIO’s EPS to decline 16% year-over-year to negative $1.50 for the year ending December 2023. Over past year the stock has lost 39.4% to close the last trading session at $8.34.
NIO’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system.
It is ranked #48 in the same industry. It has an F grade for Stability and a D for Value, Sentiment and Quality. To see additional NIO’s ratings for Growth and Momentum, click here.
What To Do Next?
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PCAR shares were trading at $87.40 per share on Tuesday afternoon, down $0.04 (-0.05%). Year-to-date, PCAR has gained 33.80%, versus a 15.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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