The automotive sector is primed for substantial expansion, fueled by escalating vehicle demand, consistent aftermarket sales, and the surging enthusiasm for Electric Vehicles (EVs). In this piece, I compared two auto stocks, Nissan Motor Co., Ltd. (NSANY) and Rivian Automotive, Inc. (RIVN), to determine which could generate better returns.

Before I compare the fundamentals of these stocks, let’s see what’s happening in the automotive industry.

Despite the pandemic's detrimental impact on worldwide automotive sales, suppliers adeptly navigated the challenging terrain. They not only maintained operational continuity and fulfilled customer demands but also vigorously pursued avenues for expansion, showcasing extraordinary resilience.

In response to supply chain disruptions triggered by the pandemic and exacerbated by the Russia-Ukraine conflict, the industry proactively devised innovative solutions. Automakers initiated a shift from "just-in-time" to "inventory banking" strategies, fortifying the supply chain and adeptly confronting these formidable challenges.

The industry stands at the threshold of further expansion, driven by escalating demand for automotive customization, the introduction of technologies like navigation systems, infotainment systems, and advanced driver assistance systems, and the emergence of e-commerce platforms facilitating the distribution of automotive components.

The burgeoning demand for vehicles, steady expansion in aftermarket sales, and the growing fascination with electric and hybrid vehicles are propelling the global automotive parts manufacturing sector.

As per the joint report by J.D. Power and GlobalData, the global new vehicle sales for 2023 are poised to reach 86.8 million units, surpassing the prior estimate of 86.4 million units, driven by the enhanced state of supply chains.

As per Business Research Insights, the global automotive market size is expected to grow at a CAGR of 3% and reach $3.27 trillion by 2028. That said, NSANY and RIVN are expected to benefit from the industry’s tailwinds.

In terms of price performance, NSANY has gained 6.9% over the past month compared to RIVN’s 11.8% gain. Moreover, NSANY has surged 15.5% over the past three months, compared to RIVN’s 63.6% rise during the same period.

Also, NSANY has climbed 25.8% over the past year to close the last trading session at $9.01, while RIVN has jumped 82.5% during the same time frame to close the last trading session at $24.11.

But which Auto & Vehicle Manufacturers stock could be a better pick? Let’s find out.

Recent Developments

On August 8, NSANY unveiled the Skyline NISMO and the Skyline NISMO Limited for the Japanese market. Production of the Skyline NISMO is capped at 1,000 units. These offerings, steeped in motorsport-derived technology, are anticipated to bolster NSANY's profitability by appealing to a niche, high-value market segment.

On May 1, it was reported that investor confidence in RIVN's competitiveness within the saturated electric vehicle market had dwindled significantly. Following an impressive public trading debut in late 2021, where it boasted a market capitalization surpassing $150 billion, the company's value plummeted by 93%, leaving it with a market cap of under $12 billion.

This precipitous decline underscored the perception that RIVN's worth was primarily contingent on its cash reserves.

Recent Financial Results

For the first quarter that ended June 30, 2023, NSANY’s net sales increased 36.5% year-over-year to ¥2.92 trillion ($19.81 billion). Its gross profit grew 46.2% from the year-ago value to ¥497.66 billion ($3.38 billion). Also, its operating income rose 98.1% from the prior year’s period to ¥128.60 billion ($873.11 million).

In addition, NSANY’s net income for the quarter came in at ¥110.87 billion ($752.79 million), up 111.7% year-over-year.

For the second quarter that ended June 30, 2023, RIVN’s revenues increased 208% year-over-year to $1.12 billion. However, the company registered a gross loss of $412 million, while its loss from operations stood at $1.29 billion. Additionally, RIVN’s net loss came in at $1.20 billion.

Moreover, as of June 30, 2023, the company’s cash and cash equivalents stood at $9.26 billion, compared to $11.57 billion as of December 31, 2022. Also, its current assets amounted to $12.86 billion, compared to $13.13 billion as of December 31, 2022.

Expected Financial Performance

Analysts expect NSANY’s revenue to increase 278.8% year-over-year to $85.08 billion for the fiscal year ending March 2024. The company’s EPS for the current year is expected to grow 65.4% from the prior year to $1.39. Also, the company surpassed the consensus revenue estimates in all four trailing quarters, which is impressive.

The consensus revenue estimate of $4.31 billion for the fiscal year ending December 2023 reflects a 159.8% improvement year-over-year. However, the company is expected to report a loss per share of $4.98 in the ongoing year. Also, RIVN missed its consensus revenue estimates in three of four trailing quarters, which is disappointing.

Valuation

In terms of trailing-12-month Price/Sales, NSANY is currently trading at 0.22x, 97.1% lower than RIVN, which is trading at 7.52x. Moreover, NSANY’s trailing-12-month EV/Sales multiple of 0.68 is 81.6% lower than RIVN’s 3.69x. Additionally, NSANY’s trailing-12-month Price to Book multiple of 0.46 compares with RIVN’s 1.95x.

Profitability

NSANY’s trailing-12-month revenue is 26.5 times that of what RIVN generates. Moreover, NSANY is more profitable, with a trailing-12-month gross profit margin of 16.45%, compared to RIVN’s negative 96.08%.

Additionally, NSANY’s trailing-12-month EBITDA and net income margin are 6.76% and 2.46%, respectively, compared to RIVN’s EBITDA margin of negative 184.60% and net income margin of negative 200.97%.

POWR Ratings

NSANY has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. Conversely, RIVN has an overall rating of F, translating to a Strong Sell. 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. NSANY has a B grade for Value, justified by its lower-than-industry valuation. In terms of forward EV/Sales, NSANY is trading at 0.68x, 40.4% lower than the 1.15x industry average. Also, its forward Price/Sales of 0.21x is 76.4% lower than the 0.87x industry average.

On the other hand, RIVN has an F grade for Value, justified by its higher-than-industry valuation. In terms of forward EV/Sales, RIVN is trading at 3.69x, 220.8% higher than the 1.15x industry average. Moreover, the stock’s forward Price/Sales of 5.31x compares to the 0.87x industry average.

In addition, NSANY has a C grade for Stability, in sync with its 24-month beta of 0.65, while RIVN has an F grade for Stability, justified by its 24-month beta of 2.38.

Of the 55 stocks in the Auto & Vehicle Manufacturers industry, NSANY is ranked #19, while RIVN is ranked #52. 

Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Sentiment, and Quality. Click here to view NSANY’s ratings. Get all RIVN ratings here.

The Winner

Leading auto stocks NSANY and RIVN are well-positioned to capitalize on the industry’s prospects. However, considering RIVN’s comparatively poor financial performance, higher valuation, low profitability, and bleak growth prospects, NSANY seems to be a better buy now.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here. 

What To Do Next?

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RIVN shares were trading at $24.04 per share on Friday afternoon, down $0.07 (-0.29%). Year-to-date, RIVN has gained 30.44%, versus a 17.00% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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