The automotive industry is anticipated to experience a turbulent journey ahead, with challenges including the energy crisis, reduced global demand, and supply-chain issues. Despite these challenges, global new-vehicle sales are projected to remain flat, with new-car sales increasing. Moreover, sales of electric vehicles (EVs) are expected to grow.
Therefore, while I think quality auto stock REV Group, Inc. (REVG) might be a solid buy now, Rivian Automotive, Inc. (RIVN) might be best avoided, given its weak fundamentals.
The rising demand for personal and commercial vehicles, the advancement of new technologies like electric and self-driving cars, and the growing awareness of safety and environmental issues among consumers is expected to drive growth in the automotive market.
Moreover, a modest return to growth is expected for new consumer and commercial vehicle sales in the next two years. ABI Research forecasts global vehicle sales growth of 5.1% this year, and 3.3% in 2024. Moreover, automakers can expect sales to return to the 90 million+ high water mark in 2025.
The global automotive market is expected to grow to $28.70 billion by 2030, at a CAGR of 4.5%.
However, car prices have accelerated in recent months, as with many other consumer goods. According to figures from data analytics firm J.D. Power, the average price paid for a new vehicle in the U.S. was up 4.2% year-over-year in January 2023. Combined with soaring gasoline prices and interest rates, car ownership is becoming more onerous, putting the brakes on auto sales.
Stock to Buy:
REV Group, Inc. (REVG)
REVG designs, manufactures, and distributes specialty vehicles, and related aftermarket parts and services in the United States, Europe, and internationally. It operates through three segments, Fire & Emergency; Commercial; and Recreation.
On June 8, 2023, REVG declared a quarterly dividend of $0.05, payable on July 14, 2023.
REVG pays $0.20 annually as dividends. This translates to a yield of 1.55% at the current market price, compared to the four-year average dividend yield of 1.53%.
REVG’s forward EV/EBITDA of 0.41x is 76.3% lower than the industry average of 1.71x. Its forward P/S multiple of 0.30 is 77.6% lower than the industry average of 1.36.
During the fiscal second quarter ended April 30, 2023, REVG’s net sales increased 25.6% year-over-year to $681.20 million. Its adjusted EBITDA increased 59.7% year-over-year to $41.90 billion, whereas its adjusted net income increased 256.8% year-over-year to $20.80 million.
REVG’s revenue is expected to increase 5.4% year-over-year to $627.17 million during the fiscal third quarter ending July 2023. Its EPS is expected to be $0.23 for the same quarter. Also, it has surpassed EPS and revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 18.1% over the past year to close the last trading session at $12.90. The stock has a 24-month beta of 0.98.
REVG’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade in Growth and a B in Value, Quality, and Stability. The stock is ranked #11 out of 57 stocks in the Auto & Vehicle Manufacturers industry.
Click here to see the POWR Ratings of REVG (Momentum and Sentiment).
Stock to Sell:
Rivian Automotive, Inc. (RIVN)
RIVN designs, develops, manufactures, and sells electric vehicles and accessories. The company offers five-passenger pickup trucks and seven-passenger sports utility vehicles.
RIVN’s forward EV/Sales of 3.73% is 222.5% higher than the industry average of 1.16%. Its forward P/S multiple of 5.69 is 566.9% higher than the industry average of 0.85.
During the fiscal first quarter that ended March 31, 2023, RIVN’s revenue came in at $661 million. Gross profit decreased 6.6% year-over-year to negative $535 million, whereas net loss came in at $1.35 billion and net loss per share attributable to Class A and Class B common stockholders came in at $1.45.
The stock has plunged 27.3% over the past nine months to close the last trading session at $24.70. The stock has a 24-month beta of 2.45.
RIVN’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary rating system.
RIVN also has an F grade for Value, Quality, and Stability and a D in Sentiment. It is ranked #51 in the same industry.
Beyond what is stated above, we’ve also rated RIVN for Growth and Momentum. Get all RIVN ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
REVG shares were unchanged in premarket trading Monday. Year-to-date, REVG has gained 3.05%, versus a 15.44% 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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