The shares of automotive giant Volkswagen AG (VWAGY) have gained 106.7% over the past year as the global automotive has industry exhibited resilience amid the COVID-19 pandemic. The company’s active interest in the electric vehicle industry since mid-2020 has caught investors’ eyes, which is reflected in the stock’s 48.9% gains over the past six months.
VWAGY’s production targets and projected market share have made the company a prominent name in the EV industry, providing stiff competition to dominant players such as Tesla, Inc. (TSLA) and NIO Limited (NIO). But while TSLA and NIO have declined year-to-date, VWAGY has gained 33.2% during this period.
VWAGY’s robust financials and industry ranking should allow it to hit its production targets over the long term. It is ranked #7 in the 2020 Global Fortune 500 List. VWAGY was named the largest car company in the world in 2020.
Click here to checkout our Electric Vehicle Industry Report for 2021
Here’s what could shape VWAGY’s performance this year:
Exposure to the EV Sector
VWAGY projects that its EV sales will account for 70% of its overall sales in Europe by 2030. The company plans to supply approximately one million cars per year in the region to meet h this goal. VWAGY expects its market share to exceed 50% in the United States and China by 2030, as stated in its ‘Accelerate Strategy’.
VWAGY plans to invest approximately €16 billion over the next five years to facilitate its transformation and to deliver optimal digital services. VWAGY Chairman Herbert Diess said the company aims to develop software for EVs in-house, which should contribute to the long-term success of its EV segment. This factor should also allow the company to compete with TSLA, which is known for state-of-the-art digital services and software.
In September 2020, VWAGY-backed solid-state battery company QuantumScape went public through an SPAC deal, giving the latter an estimated market valuation of $3.30 billion. QuantumScape’s growth should ensure an adequate flow of lithium-ion batteries to VWAGY. These batteries are required for its EV production.
VWAGY unveiled the ID.4 electric SUV, in September last year. Its EV sales increased 158% year-over-year in 2020, while its battery electric vehicle sales rose 197% from the year-ago value over this period.
The company Solid Financials
With a market capitalization of $128.34 billion, VWAGY has generated $272.27 billion in revenues over the past year. It has generated $12.96 billion in gross profit and $10.78 billion as net income in its trailing 12 months. It has stable cash flows and current asset holdings, indicating a sound liquidity position. VWAGY has trailing 12-month net operating cash flow of $27.58 billion and $58.43 billion in cash. Its trailing12-month cash per share was $116.55.
The company’s trailing-12-month net income and levered free cash flow margins of 3.96% and 9.65%, respectively, are significantly higher than industry averages. Its trailing 12-month ROE of 7.28% is 51.3% higher than the industry average 4.81%.
Trading at a Discounted Valuation
In terms of forward p/e, VWAGY is currently trading at 5.08x, 74.9% lower than the industry average 20.24x. The company’s forward price/sales and price/cash flow multiples of 0.39 and 4.30, respectively, compare favorably with industry averages of 1.39 and 15.15, respectively.
POWR Ratings Show Promise
VWAGY has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors with each factor weighted to an optimal degree.
VWAGY has a grade of A for Growth, and B for Value and Momentum. The company’s growth potential, given its stake in the EV race and financial backing, justifies its growth grade. Its impressive price performance and discounted valuation is in sync with the Momentum and Value grades.
VWAGY is ranked #3 of 51 stocks in the B-rated Auto & Vehicle Manufacturers industry. In addition to the grades I’ve highlighted, check out VWAGY Ratings for Stability, Quality and Sentiment here.
There are 16 other stocks in the Auto & Vehicles Manufacturers industry with an overall rating of A or B. Click here to view them.
Bottom Line
Electric vehicles are transforming the global automotive industry, and VWAGY is well-positioned to emerge as a leading manufacturer of EVs worldwide . The company’s extensive investments in this field and diverse product portfolio should allow it to emerge as one of the top players in the EV manufacturing industry. Thus, we believe VWAGY has the potential to deliver significant ROI in the upcoming months and over the long term.
Click here to checkout our Electric Vehicle Industry Report for 2021
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VWAGY shares were trading at $28.45 per share on Monday morning, up $0.68 (+2.45%). Year-to-date, VWAGY has gained 36.45%, versus a 5.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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