Consumers’ growing interest in electric vehicles (EVs) and substantial investments to reach carbon neutrality allowed EV giant Tesla, Inc. (TSLA) to grow exponentially over the years. Fast forward to today, semiconductor shortage, growing production challenges, and increasing competition are leading to the stock losing momentum. Given the company’s weak growth prospects, its shares look overvalued at the current price level.
In terms of forward EV/Sales, TSLA is trading at 9.83x, 783.1% higher than the industry average of 1.11x. Although an increase in vehicle production helped TSLA improve its financial year-over-year in the second quarter, the performance was weaker than in the first quarter. Therefore, the stock might lose significantly amid the ongoing market volatility.
Although high inflation, shortage of raw materials and semiconductor chips, and high-interest rates heavily weigh on auto production and demand, the rising interest and investments in EVs should drive the automotive industry’s growth. The global EV market is expected to grow at an 18.2% CAGR to $823.75 billion by 2030.
Therefore, we believe Japan-based EV manufacturers Honda Motor Co., Ltd. (HMC) and Isuzu Motors Limited (ISUZY) are better investments than TSLA, given their sound financials.
Honda Motor Co., Ltd. (HMC)
Based in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, and power products. It also sells spare parts and provides after-sales services directly through retail dealers, independent distributors, and licensees.
On July 21, 2022, HMC held the world online premiere of its all-new Civic Type R, unveiling its exterior and interior designs and announcing advancements to the vehicle’s dynamic performance.
The 2.0-liter VTEC Turbo engine was further refined to achieve higher output and responsiveness to the upper limit. Scheduled to go on sale in Japan in September 2022, this model should witness high demand in the coming months.
For the fiscal 2022 fourth quarter ended March 31, 2022, HMC’s sales revenue increased 10.5% year-over-year to ¥3.88 trillion ($28.36 billion). The company’s operating profit came in at ¥199.59 billion ($1.46 billion), representing a 6.4% decline from the prior-year period.
Its net profit came in at ¥144.50 billion ($1.06 billion), down 35.4% from its year-ago period. HMC’s EPS came in at ¥73.02, indicating a 40.9% year-over-year decline. As of March 31, 2022, the company had ¥3.68 trillion ($26.89 billion) in cash and cash equivalents.
Analysts expect an EPS estimate of $3.47 for fiscal 2023 ending March 31, 2023, indicating a rise of 26.6% from the prior-year period. It surpassed Street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $120.44 billion for the same fiscal year represents a 350.9% year-over-year improvement.
The stock’s 0.53x forward EV/Sales is 52.7% lower than the 1.11x industry average. In terms of forward Price/Sales, HMC is trading at 0.40x, 56% lower than the 0.91x industry average. The stock has gained 4.6% over the past week to close the last trading session at $25.64.
HMC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Value and a B for Sentiment, Stability, and Quality. Click here to see the additional ratings for HMC’s Growth and Momentum.
HMC is ranked #1 of 65 stocks in the Auto & Vehicle Manufacturers industry.
Isuzu Motors Limited (ISUZY)
ISUZY is a Japan-based company that manufactures and sells automobiles, components, and industrial engines and provides logistics-related services.
It sells commercial vehicles, light commercial vehicles, light and heavy-duty trucks, sport utility vehicles, diesel engines, and components worldwide.
ISUZY announced on July 19, 2022, that it would collaborate with Toyota Motor Corporation (TM) and its Hino Motors, Ltd. (HINOY) and Commercial Japan Partnership Technologies Corporation (CJPT) brands to jointly plan and develop light-duty fuel cell (FC) electric trucks for the mass-market.
FC technology, which runs on high energy density hydrogen and has zero CO2 emissions while driving, is considered effective in fulfilling light-duty trucks’ daily operations. This is expected to contribute to the realization of a hydrogen society and carbon neutrality by expanding the options available for customer use and increasing the demand for hydrogen.
For its fiscal first quarter ended June 30, 2021, ISUZY’s net sales revenue increased 31.8% year-over-year to ¥2.51 trillion ($18.40 billion). The company’s gross profit came in at ¥458.19 billion ($3.35 billion), up 136.8% from the prior-year period. Its operating profit came in at ¥187.20 billion ($1.37 billion) for the quarter, representing a 95.5% year-over-year improvement.
ISUZY’s net income came in at ¥126.19 billion ($923.46 billion), up 195.5% from the prior-year period. Its EPS increased 181.3% year-over-year to ¥162.87. As of March 31, 2022, the company had cash and cash equivalents of ¥341.71 billion ($2.50 billion). Analysts expect the company’s revenue to be $21.56 billion for fiscal 2023 ending March 31, 2023, representing a 150.8% rise from the prior-year period.
The stock’s 0.53x forward EV/Sales is 52.7% lower than the 1.11x industry average. In terms of forward Price/Sales, ISUZY is trading at 0.40x, 56% lower than the 0.91x industry average. The stock has gained 5.2% over the past week to close the last trading session at $11.10.
ISUZY’s POWR Ratings reflect this promising outlook. The stock has an overall A grade, equating to Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability, Sentiment, and Quality. Click here to see the additional ratings for ISUZY’s Growth and Momentum. ISUZY is ranked #3 in the same industry.
HMC shares were unchanged in after-hours trading Friday. Year-to-date, HMC has declined -9.24%, versus a -16.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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