After years of below-par performance, the auto industry is riding the waves of optimism as demand remains robust amid easing inflation and supply chain challenges. Despite the high borrowing rates, auto sales will likely remain healthy this year.
However, not all auto stocks are likely to capitalize on the tailwinds. While avoiding fundamentally weak Nikola Corporation (NKLA) could be wise, investors could consider buying Wabash National Corporation (WNC), given its strong fundamentals and growth prospects.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the automobile industry is expected to perform well.
Sales of new vehicles last year dropped to their lowest level since 2011 due to the challenges posed by high inflation, rising interest rates, and supply chain constraints. However, auto sales have bounced back strongly this year as new-vehicle sales in September rose 0.7% sequentially and 18.5% year-over-year.
The auto industry also benefits from transitioning to battery electric vehicles (BEVs). The shift to cleaner modes of transportation is helping automakers register strong sales. Moreover, thanks to government incentives, price cuts, a wide range of vehicles to choose from, and expanding charging infrastructure, EVs will continue to boost automakers' sales.
The strength of EV sales can be gauged from the strong sales of battery-powered vehicles in September as it crossed the 300,000 marks for the first time in the United States. The year-to-date EV sales through September reached just over 873,000, and the market is highly likely to cross the 1 million vehicle sales this year. Cox Automotive has forecast that new vehicle sales will rise 8% over the prior year to 15 million in 2023.
Considering these factors, let’s examine the fundamentals of the two stocks from the Auto & Vehicle Manufacturers industry, beginning with the one ranked lower from the investment point of view.
Stock #2: Nikola Corporation (NKLA)
NKLA operates as a technology innovator and integrator that works to develop energy and transportation solutions. It operates through two business units, Truck and Energy.
In terms of forward EV/Sales, NKLA’s 11.69x is 607.3% higher than the 1.65x industry average. Likewise, its 10.55x forward Price/Sales is 696.6% higher than the 1.32x industry average.
NKLA’s trailing-12-month gross profit margin is negative 222.12% compared to the 30.31% industry average. Likewise, its trailing-12-month Return on Common Equity is negative 132.55% compared to the 13.59% industry average. Furthermore, the stock’s negative 74.31% trailing-12-month Return on Total Assets compares to the industry average of 5.05%.
NKLA’s revenues for the second quarter ended June 30, 2023, declined 15.3% year-over-year to $15.36 million. Its gross loss narrowed 5.6% year-over-year to $27.63 million. Its adjusted EBITDA loss widened 30.8% year-over-year to $125.07 million. The company’s non-GAAP net loss widened 32.7% year-over-year to $139.34 million. In addition, its non-GAAP net loss per share widened 20% year-over-year to $0.20.
Street expects NKLA’s revenue for the quarter ended September 30, 2023, to decline 5.5% year-over-year to $22.92 million. Its EPS for the same quarter is expected to remain negative. It failed to surpass the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has declined 57.7% to close the last trading session at $1.27.
NKLA’s POWR Ratings reflect its poor prospects. It has an overall F grade, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Stability and Quality and a D for Value and Sentiment. It is ranked #49 out of 52 stocks in the Auto & Vehicle Manufacturers industry. Click here to see the other ratings of NKLA for Growth and Momentum.
Stock #1: Wabash National Corporation (WNC)
WNC designs, manufactures, and distributes connected solutions for the transportation, logistics, and distribution industries. The company operates through two segments: Transportation Solutions and Parts & Services.
On September 18, 2023, WNC announced a multi-year agreement with Rockland Flooring for laminated wood trailer flooring. Rockland Flooring has been a WNC supplier for 15 years, and the agreement will help generate long-term value by ensuring the supply of wood flooring, which remains constrained in the trailer industry.
WNC’s vice president of global procurement, Richard Mansilla, said, “As our new dry van trailer manufacturing facility reaches full capacity in 2024, poised to yield an additional 10,000 units annually, this agreement will allow us to secure wood flooring above what we can produce out of Wabash’s wood flooring production facility in Harrison, Arkansas.”
On August 25, 2023, WNC hosted a ribbon-cutting event for its advanced dry van trailer manufacturing facility in Lafayette, Indiana. The strategic capacity expansion, announced in July 2021, will help produce an additional 10,000 dry van trailers annually. The impact of this additional capacity will be realized in 2024.
In terms of forward non-GAAP P/E, WNC’s 4.92x is 71.7% lower than the 17.39x industry average. Its 3.82x forward EV/EBITDA is 65.3% lower than the 10.99x industry average. Likewise, its 4.41x forward EV/EBIT is 70.9% lower than the 15.18x industry average.
In terms of the trailing-12-month net income margin, WNC’s 7.75% is 24.9% higher than the 6.21% industry average. Likewise, its 10.84% trailing-12-month EBIT margin is 10.6% higher than the industry average of 9.80%. Furthermore, the stock’s 3.46% trailing-12-month Capex/Sales is 18.1% higher than the industry average of 2.93%.
For the fiscal second quarter ended June 30, 2023, WNC’s net sales increased 6.8% year-over-year to $686.62 million. Its gross profit rose 93.5% over the prior year quarter to $151.03 million. The company’s net income attributable to common shareholders increased 229.6% year-over-year to $74.33 million. Also, its EPS came in at $1.54, representing an increase of 234.8% year-over-year.
Analysts expect WNC’s EPS and revenue for the quarter ended September 30, 2023, to increase 40.2% and 3.6% year-over-year to $1.02 and $678.70 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 36.2% to close the last trading session at $22.11.
WNC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
Within the same industry, it is ranked #19. It has an A grade for Value and a B for Quality. To see the additional ratings of WNC for Growth, Momentum, Stability, and Sentiment, click here.
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NKLA shares were trading at $1.29 per share on Friday afternoon, up $0.02 (+1.57%). Year-to-date, NKLA has declined -40.28%, versus a 14.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
Nikola (NKLA) and Wabash National (WNC): Are These Auto Stocks a Buy, Hold, or Sell? StockNews.com
