Based in Wolfsburg, Germany, Volkswagen AG (VWAGY) manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific. The company operates in four segments: Passenger Cars and Light Commercial Vehicles; Commercial Vehicles; Power Engineering; and Financial Services. On the other hand, Ford Motor Company (F) designs, manufactures, markets, and services a range of Ford trucks, cars, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles worldwide. It operates through three segments: Automotive; Mobility; and Ford Credit.

The global semiconductor shortage, supply chain disruption, and labor issues have negatively impacted the auto manufacturing industry. However, huge government and private investments to boost semiconductor production should address the concern and help auto manufacturers restart operations. This, along with the increasing demand for electric vehicles due to rising oil prices and climate change concerns, should drive the industry’s growth. Moreover, traditional automakers could benefit more because of their broad portfolio of vehicles and market dominance. According to a report by Market Research Future, the automotive industry is expected to grow at a CAGR of 4.5% between 2021 and 2028. Therefore, both VWAGY and F should benefit.

F has gained 56.6% over the past nine months, while VWAGY has returned 13.4%. Also, F’s 114.2% gains over the past year are significantly higher than VWAGY’s 54.4% returns. Moreover, F is the clear winner with 125.4% gains versus VWAGY’s 42.3% returns in terms of year-to-date performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On November 3, 2021, VWAGY announced the new ID.5 and the sporty ID.5 GTX will launch in 2022, tapping into an entirely new market segment and advancing its electric offensive in all vehicle classes in the framework of its ACCELERATE strategy. This is expected to help the company expand its reach in the electric vehicle space.

On September 27, 2021, F announced plans to bring electric vehicles at scale to American customers with two new massive, environmentally and technologically advanced campuses in Tennessee and Kentucky. They are expected to produce the next generation of electric F-Series trucks and the batteries to power future electric Ford and Lincoln vehicles. This could increase the sales of the company.

Recent Financial Results

VWAGY’s revenues decreased 4.1% year-over-year to €56.93 billion ($64.12 billion) for the fiscal third quarter ended September 30, 2021. The company’s operating result declined 18.5% year-over-year to €2.60 billion ($2.92 billion). However, its earnings after tax came in at €2.90 billion ($3.27 billion), representing a 5.5% year-over-year increase. Also, its EPS came in at €5.51, up 6.6% year-over-year.

F’s revenues decreased 4.8% year-over-year to $35.70 billion for the fiscal third quarter ended September 30, 2021. The company’s adjusted EBIT declined 16.7% year-over-year to $3 billion, while its net income came in at $1.80 billion, representing a 25% year-over-year decrease. Also, its adjusted EPS came in at $0.51, down 21.5% year-over-year.

Past and Expected Financial Performance

Analysts expect VWAGY’s revenue to increase 15.4% in fiscal 2021 and 5% in fiscal 2022. The company’s EPS is expected to grow 78.9% in fiscal 2021 and 5% in fiscal 2022. Moreover, its EPS is expected to grow at a rate of 5.1% per annum over the next five years.

On the other hand, F’s revenue is expected to increase 9.4% in fiscal 2021 and 14% in fiscal 2022. Its EPS is expected to grow 363.4% in fiscal 2021 and 4.2% in fiscal 2022. Also, the company’s EPS is expected to grow at a rate of 77.7% per annum over the next five years.

Profitability

VWAGY’s trailing-12-month revenue is 2.19 times what F generates. VWAGY is also more profitable with a gross profit margin and net income margin of 18.96% and 7.23% compared to F’s 10.09% and 2.13%, respectively

Furthermore, VWAGY’s ROE, ROA, and ROTC of 13.97%, 2.98%, and 4.45% are higher than F’s 8.15%, 0.72%, and 0.99%, respectively.

Valuation

In terms of forward non-GAAP P/E, F is currently trading at 10.34x, 102.3% higher than VWAGY’s 5.11x. Moreover, F’s forward EV/EBITDA ratio of 14.81x is 84.7% higher than VWAGY’s 8.02x.

So, VWAGY is relatively affordable here.

POWR Ratings

VWAGY has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, F has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

VWAGY has a B grade for Stability. In comparison, F has a D grade for Stability.

Of the 66 stocks in the Auto & Vehicle Manufacturers industry, VWAGY is ranked #10. In comparison, F is ranked #20.

Beyond what I’ve stated above, we have also rated the stocks for Growth, Momentum, Value, Stability, and Sentiment. Click here to view all the VWAGY ratings. Also, get all the F ratings here.

The Winner

The auto manufacturing industry is expected to grow exponentially with increasing demand for zero-emission vehicles. While both VWAGY and F are expected to benefit, it is better to bet on VWAGY now because of its lower valuation and higher profitability.

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

VWAGY shares were trading at $30.96 per share on Friday afternoon, down $0.04 (-0.13%). Year-to-date, VWAGY has gained 50.14%, versus a 26.93% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

More...