When some investors think of Volkswagen AG (XTRA:VOW) they think of a compact, stable, and affordable car, with durable German engineering quality. Indeed, that has been the focus of VOW in the previous 10 years, however things are much different today, and investors can sometimes be surprised to find out just how big VOW has become. In this article, we will re-visit the scope of Volkswagen and analyze their value potential.
Volkswagen has expanded considerably and now makes revenue from passenger car vehicles, commercial vehicles (mostly trucks), power engineering and their financial division. The table below shows the first half results of their different vehicles:
We can see that the Volkswagen group includes some very popular legacy brands like: Audi, Škoda, Seat, Bentley, Porsche, Man and Scania. Besides that, the financial services now bring in a significant portion of revenues, and the Chinese division sold about as many vehicles as the standard cars division.
The company has made a good rebound in the last quarter, with revenue growth TTM YoY reaching 14.7%, while CoGS scaled nicely at 10%, which means the company managed their inventory and production more efficiently.
The company is also increasingly profitable, and has even reached an all-time high EBIT margin in at 8.9% for the last TTM period. This is the highest profitability has been in more than 5 years. These margins will probably converge back when the global supply chain strains stabilize.
The company has also continuously delivering more cash flows and for the TTM ending on 30 June Volkswagen made EUR36b, up 90% from the same period in 2020.
Analysts are also optimistic on the company, and project an annual revenue growth of 4.3%, and target revenues of EUR277.6b by the end of 2023.
All of this indicates quite a stable company, and there are a few things that lay the groundwork for future growth. Volkswagen is working towards producing electrical vehicles for the broader market and is making capital investments in batteries and expanding general production capacity.
Volkswagen certainly has been doing a good job lately, as it's been growing earnings more than most other companies.
If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favor.
It seems that Volkswagen is at par value with the industry valuation, and quite below the market valuation. The 5.3x price to earnings ratio simply means that investors will make enough earnings from the company to cover the price they paid for the stock in a bit over 5 years.
Keen to find out how analysts think Volkswagen's future stacks up against the industry? In that case, our free report is a great place to start.
What Are Growth Metrics Telling Us About The Low P/E?
Retrospectively, the last year delivered an exceptional 235% gain to the company's bottom line. The latest three year period has also seen an excellent 56% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.
Looking ahead now, EPS is anticipated to climb by 0.4% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 15% per annum growth forecast for the broader market.
Another way to assess the business is to look at an estimate of its intrinsic value. You can view our valuation of Volkswagen HERE.
Volkswagen is still growing and has some quality brands in the group. The company has a lot of opportunities for growth in electrical vehicles, legacy vehicles and commercial vehicles. The recent stock downturn may present a good opportunity to place the stock on a watch list.
While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it gives investors a good insight to the profit making capacity of the firm.
There are also other vital risk factors to consider and we've discovered 2 warning signs for Volkswagen (1 is a bit concerning!) that you should be aware of before investing here.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.