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Analyze automotive stocks for investment

Performed with XBRLAnalyst for Excel

Summary

We analyzed a mix of highly traded 10 stocks of traditional and electric car manufacturers traded in the US using XBRLAnalyst in Excel. Based on our comparative and fundamental analysis, Tesla, Shyft Group and Workhorse Group have a good potential to show strong growth of their stocks.

RIDE LORDSTOWN MOTORS CORP.
F FORD MOTOR CO
GM GENERAL MOTORS CO
IDEX IDEANOMICS, INC.
NAV NAVISTAR INTERNATIONAL CORP
NKLA NIKOLA CORP
OSK OSHKOSH CORP
SHYF SHYFT GROUP, INC.
TSLA TESLA, INC.
WKHS WORKHORSE GROUP INC.

Introduction

The automotive trade consists of large companies like Ford (F), General Motors (GM), Tesla (TSLA), and Workhorse Group (WKHS). The trade includes not solely the main carmakers but also a range of corporations whose primary business is the designing, producing, and selling of automotive elements or vehicles. The US has sixteen car makers that, together, manufactured eleven million vehicles in 2018, the majority being from the “big three” automotive makers (General Motors, Ford, and Tesla). The foremost necessary part of the trade is that the production and sale of vehicles and lightweight trucks. Industrial vehicles, like large semi-trucks, are a vital secondary part of the trade.

Another essential facet of the motorcar trade is that the relationship between major motorcar makers and the original equipment producers who provide the parts is that the major automakers do not really manufacture many of the components that get into an automobile. This trade is capital-intensive and spends quite $100 billion every year on analysis and development.

The motorcar industry constitutes one of the vital market sectors. It is one of the most important sectors in terms of revenue. Each customer demand and therefore the health of the general economy is measured. The automobile industry accounted for nearly three percent of the U.S. GDP in 2018. Analysts and investors admit a variety of key ratios to judge automotive corporations particularly 3 primary ratios indicated as below:

·        Return on Equity Ratio

·        Inventory Turnover Ratio

·        Debt-to-Equity Ratio

XBRLAnalyst: =FinValue(“TSLA”,”[ROE]”,”2020-FY”,,,”bln”)

Key Financial Metrics

Return on Equity Ratio

The ROE could be a key financial ratio for evaluating virtually any company, and it is thought-about a vital metric for analyzing firms within the automobile business. The ROE is particularly necessary to investors because it measures a company’s net income regarding shareowner equity, basically how profitable an organization is for its investors. Ideally, investors and analysts opt to see higher returns on equity, and ROEs of fifteen (15%) to twenty percent (20%) are deemed favorable.

The average annual ROE during the last ten years for Workhorse, Oshkosh Corp, General Motors Co, and Ford Motors Co is 146%, 14%, 15%, and 30% respectively which shows a reasonable reward for its shareholders. This indicator is showing a very poor position for the companies Navistar (-568%), Ideanomics (-204%), and Tesla (-65%). The other companies having even a higher return on equity are not being considered in the absence of sufficient data.

Inventory Turnover Ratio

The inventory turnover ratio is a vital analysis metric specifically applied at intervals the automobile business to automobile dealerships. It is typically thought of as a warning call for automobile sales if automobile dealerships begin carrying considerably over sixty days of inventory on their lots. The inventory turnover ratio calculates the number of times during a year, or another such timeframe, that a company’s inventory is sold, or turned over. It is an effective way to judge the efficiency of an organization and to analyze if it manages ordering and inventory levels reasonably. However, this gauge has a lot of significance for automotive dealerships. This shows a sign of how speedily they are commercializing the prevailing inventory of cars on their heap.

Average inventory turnover in days has been calculated for these companies over a period of the last ten years. Auto dealers for Oshkosh (365/5.34 = 68 days), Shyft (365/5.15 = 71 days), Tesla (365/3.08 = 118 days) and Workhorse 365/3.52 = 104 days) are spending more than 60 days to sell their respective inventory. Thus, this time needs to be reduced so that investments do not remain stuck up unnecessarily in inventory. The stock turnover ratio is especially alarming for the Workhorse group.

Debt-to-Equity Ratio

Because the motor vehicle business is capital-intensive, a crucial metric for evaluating motor vehicle corporations is that the debt-to-equity ratio (D/E), which measures a company’s overall money health and indicates its ability to fulfill its funding obligations. An increasing D/E ratio indicates a corporation is being more and more supported by creditors instead of by its own equity. Therefore, each investor and potential lenders like better to see a lower D/E ratio. A D/E ratio of one indicates a corporation whose assets and liabilities measure equal.

The average Debt-to-equity ratio has also been calculated over the period of the last ten years for these companies. Navistar International (12.6), Ford Motors (4.3), and Tesla (2.1) are the poor students in this category. Consequently, the credit and solvency risks are much higher regarding the investment made in these companies.

Share Price Evolution

The table shows the fluctuation in the share prices over the period of the last ten years for US car-related companies. Average annual growth and to date growth in the share prices of these companies can be seen in the table. With the help of the share price evolution table and its graph, we can easily observe the highest annual growth 171% for Tesla, 150% for Shyft Group, and then 90% for Ideanomics.

In the second graph, the portfolio position on the investment of $10,000 over a period of ten years is shown. We can get the maximum benefit by investing in Tesla 266% ($292,460) and Shyft Group 49% ($53,638) over a period of ten years.

Price Earnings (P/E) Ratio:

The P/E ratio indicates how much price the market is willing to pay today for a stock based on its past or future gains. A high P/E could mean that a stock’s price is high as compared to its earnings and possibly overvalued. Conversely, a low P/E might show that the actual stock price is low relative to earnings. Thus, Ford, Lordstown, and Oshkosh are over-valued whereas General Motors and Navistar are under-valued. Tesla, Ideanomics, and Workhorse have negative P/E ratios which means these companies are losing money because they have negative earnings.

EV/EBITDA:

A low EV/EBITDA ratio signifies that the stock is relatively undervalued and a higher ratio shows it may be overvalued. In the current scenario, GM, Oshkosh, and Ford are undervalued in this group and worth be purchased. Ideanomics, Nikola, and Workhorse have negative EBITDA which indicates these companies are facing some operational difficulties or poorly managed.

Revenue Growth

This graph (Revenue YOY 2011-2020) shows Workhorse and Ideanomics revenue growth is 476% and 166% respectively even though their market shares as compared to other giants (GM, Ford, and Tesla) is not significant. The average gross profit margin is 40% for Shyft and 27% for Tesla whereas the average profit margin for Ford, GM, and Oshkosh, is 5%, 4.8%, and 4.5%, respectively.

Market Capitalization:

Market Capitalization graph clearly shows that the major market share in the car industry remains with GM ($49.8 bln dollars), Ford ($46.2 bln), and Tesla $28.7 bln).

Interest Coverage Ratio

Average interest coverage ratio graph indicates the bad situation for Ideanomics, Tesla and Workhorse companies regarding their capability to honor its debt payments. In this respect, Shyft (263%) and Oshkosh (8%) companies are performing their job better.

Using our Excel Model built with XBRLAnalyst and connected to FinDynamics’ database of stock prices and financial reports, we can quickly retrieve all the metrics posted above for multiple quarters. As an example, we can review the financials for Tesla for the last 9 years and specifically for the most recent quarter below.

Valuation Conclusions

The share price evolution graph clearly shows Tesla, Workhorse, and Shyft companies are at the top. Graph showing portfolio situation of investment of 10k is more favorable for Tesla, Shyft Workhorse, and Oshkosh groups. P/E ratio indicating a positive trend for General Motors and Navistar.

The average price change in the percentage graph is giving positive results for Workhorse, Tesla, and Shyft companies. Graphs YOY 2011-2020 and Annualized periodic change are mentioning good results for Workhorse, Tesla, Shyft, and Ideanomics groups.

The average total debt to equity is not favorable for Navistar, Ford, Tesla, and GM because these companies are under heavy debts. This situation is within reasonable limits for the remaining companies.

So far as the ROE ratio is concerned, Workhorse and Ford are the champions in this category. EV/EBITDA ratio is showing positive signs for Oshkosh and Ford groups. After evaluating the above profit margin figures, GM, Ford, and Oshkosh become relatively more favorable for investment purposes. The interest coverage ratio is showing healthy signs for Shyft and Oshkosh groups.

After going into different details of these financial metrics, the stock of the following companies has a good potential for further growth:

  • TESLA, INC.
  • SHYFT GROUP, INC.
  • WORKHORSE GROUP INC.

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