In this article, I have analyzed two auto stocks, QuantumScape Corporation (QS) and Modine Manufacturing Company (MOD), to determine the leading auto stock for 2024. After thoroughly evaluating these stocks, I think that MOD might be a superior choice for the reasons discussed in this article.
Rapid population growth, urbanization, infrastructure development, and industrial expansion are expected to drive commercial vehicle sales growth. Also, the escalating demand for high-end passenger vehicles is likely to enhance the performance of the market. The global automotive market is projected to grow at a CAGR of 6.9% until 2030.
Moreover, the requirement for auto parts and accessories is rising as a result of the expansion of regional demand, government incentives, and simple access to raw materials. Increased government support for the development of new automobiles with more efficient engines is expected to boost interest in auto parts and accessories, which is driving market expansion.
The global auto parts market is expected to grow at a CAGR of 3.8% until 2031.
MOD is a clear winner in terms of price performance, as QS has declined 11.1% over the past six months as compared to MOD’s 80.9% gain. Also, QS declined 10.1% over the past nine months compared to MOD’s 171.2% gain.
Here are the reasons why I think MOD might perform better in the near term:
Recent Developments
On December 6, 2023, MOD offered the VidaShield UV24 Active Air Disinfection System product line to the K-12 school market. This innovative solution would further help equip schools with the necessary tools to combat airborne pathogens.
Recent Financial Results
QS’s loss from operations increased marginally year-over-year to $120.87 million for the fiscal third quarter that ended September 30, 2023 came in at $23.35 billion. Its net loss attributable to common stockholders came in at $110.62 million, while its net loss per share came in at $0.23.
On the contrary, during the six months ended September 30, 2023, MOD’s net sales grew 11% year-over-year to $1.12 billion. The company generated gross profit and operating income of $263 million and $132.20 million, up 46.4% and 111.9% year-over-year, respectively. Its adjusted EBITDA and EPS increased 73.4% and 117.5% year-over-year to $161.60 million and $1.74, respectively.
Past And Expected Financial Performance
QS’ total assets have increased at a CAGR of 126.3% over the past three years. Its EPS is expected to be negative $0.78 this year, negative $0.20 in the fourth quarter ended December 2023, and negative $0.15 in the current quarter ending March 2024.
Conversely, MOD’s total assets has increased at a CAGR of 2% over the past three years. Its revenue is expected to increase 8.2% in the year ending March 2024, 6.2% in the to-be-reported quarter that ended December 2023, 5% in the current quarter ending March 2024. Its EPS is expected to be $3.05 in the year ending March 2024, $0.59 in the to-be-reported quarter that ended December 2023.
Valuation
QS’ forward P/B multiple of 2.50 is lower than MOD’s 4.35.
Profitability
QS's trailing-12-month ROCE of negative 31.52% is lower than MOD’s 37%. In addition, QS’s trailing-12-month ROTC of negative 19.43% is lower than MOD’s 14.16%.
Thus, MOD is more profitable.
POWR Ratings
QS has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, MOD has an overall rating of B, translating to a 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. QS has a D grade in Quality. Its trailing-12-month ROCE and ROTC of negative 31.52% and 19.43% are lower than the industry averages of 11.40% and 6.02%.
On the other hand, MOD has a B grade in Quality. Its trailing-12-month ROCE and ROTC of 37% and 14.16% are 224.5% and 135.1% higher than the industry averages of 11.40% and 6.02%.
Moreover, QS has a D in Sentiment in sync with its unfavorable analyst estimates. In contrast, MOD has a B grade for Sentiment consistent with favorable analyst estimates.
Among the 61 stocks in the A-rated Auto Parts industry, QS is ranked #60, while MOD is ranked #18.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, and Stability. Get all QS ratings here. Click here to view MOD ratings.
The Winner
Sale of automotive components are anticipated to increase as the demand for vehicles increase due to rise in consumer disposable income. Moreover, technological advancements that increase production of auto parts are expected to further fuel market expansion. Industry players such as QS and MOD are well-positioned to benefit from these industry tailwinds.
However, QS' poor profitability and unfavorable analyst estimates makes its competitor MOD 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 Parts industry here.
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MOD shares were trading at $60.48 per share on Tuesday afternoon, up $0.78 (+1.31%). Year-to-date, MOD has gained 1.31%, versus a -0.60% 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.
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