The auto industry is undergoing a significant transformation with the rise of Electric Vehicles (EV), autonomous driving technology, and connected cars. Investing in auto stocks allows investors to tap into the potential of these disruptive technologies and be part of the future of transportation.
Against this backdrop, it could be wise to take a bullish stance on the fundamentally sound stocks American Axle & Manufacturing Holdings, Inc. (AXL) and Miller Industries, Inc. (MLR). However, owing to still-elevated inflation and its impacts, it might be wise to steer clear of investing in the fundamentally weak stock Luminar Technologies, Inc. (LAZR).
In 2021, the U.S. automotive aftermarket reached a substantial value of approximately $326 billion. Projections indicate that this market is poised for further growth in the upcoming years, with expectations of surpassing $400 billion by 2025.
The growth of the auto industry is further driven by the rise in demand for EVs. For example, the U.S. EV market’s revenue is anticipated to reach approximately $70.13 billion by 2023 and exhibit a strong CAGR of 18.2% between 2023 and 2028.
Furthermore, due to the rapid proliferation of technology and rising Research & Development (R&D) expenditures by manufacturers, the auto parts market is expected to be worth $755 billion by 2026, and between 2023 and 2032, it is forecasted to attain a growth rate of 7.5%.
Considering this, it becomes evident that the global auto market holds a promising outlook with significant opportunities in the foreseeable future.
However, it is essential to keep in mind that auto stocks tend to be highly sensitive to economic cycles. During economic downturns, consumer spending on big-budget items like automobiles tends to decline, impacting the profitability of auto companies. This can introduce volatility and uncertainty into auto stock investments.
With that being said, let us evaluate the fundamentals of the featured stocks in detail.
Stock to Avoid:
Luminar Technologies, Inc. (LAZR)
LAZR is an automotive technology company that provides sensor technologies and software for passenger cars and commercial trucks. It operates in two segments: Autonomy Solutions; and Advanced Technologies and Services. The company designs, manufactures, and sells laser imaging, detection, etc.
LAZR’s trailing-12-month gross profit and levered FCF margins of negative 134.66% and 129.70% compare with the industry averages of 35.24% and 3.49%. Likewise, its trailing-12-month asset turnover ratio of 0.07x is 93.4% lower than the industry average of 1.01x.
During the first quarter that ended March 31, 2023, LAZR’s gross loss increased 49.2% year-over-year to $14.62 million. Its total operating expenses rose 75.5% from the year-ago value to $127.27 million.
The company’s loss from operations and non-GAAP net loss widened 72.3% and 58.2% from the year-ago value to $141.89 million and $88.67 million, respectively. Also, its non-GAAP net loss per share came in at $0.24, widening 50% year-over-year.
Analysts expect LAZR’s loss per share to be $0.23, declining 28.2% year-over-year in the second quarter (ending June 2023). Its EPS is expected to remain negative for the fiscal years 2023 and 2024. Moreover, it has a grim earnings surprise history, missing the EPS estimates in three of the trailing four quarters.
The stock has slumped 30.4% over the past year to close the last trading session at $6.71.
LAZR’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an F grade for Value, Stability, Sentiment, and Quality. Within the Auto Parts industry, it is ranked last out of 57 stocks. Click here to see the other ratings of LAZR for Growth and Momentum.
Stocks to Buy:
American Axle & Manufacturing Holdings, Inc. (AXL)
AXL designs, engineers, and manufactures driveline and metal-forming technologies that support electric, hybrid, and internal combustion vehicles. It operates through Driveline and Metal Forming segments. The company offers rear axles, driveshafts, differential assemblies, clutch modules, engine, transmission, driveline, safety-critical components, etc.
On May 5, AXL invested $10 million in the Global Strategic Mobility Fund (GSMF), a venture capital fund managed by EnerTech Capital. This investment allows AXL to become a strategic partner and leverage EnerTech's extensive network of business alliances and emerging technologies. This partnership aims to drive mobility innovation, benefiting AXL's products and operational capabilities.
On the same day, AXL obtained a new contract that involved the supply of electric beam (e-Beam) axles for an upcoming electric vehicle program in partnership with Stellantis. This future program is projected to commence production in the later part of this decade. It will incorporate front and rear e-Beam axles, integrating AXL's advanced 3-in-1 e-Drive technology.
The stock’s trailing-12-month EBITDA and levered FCF margins of 11.90% and 5.53% are 9.4% and 58.5% higher than the 10.88% and 3.49% industry averages, respectively. Likewise, its trailing-12-month asset turnover ratio of 1.05x is 4.2% higher than the industry average of 1.01x.
AXL’s net sales increased 4% year-over-year to $1.49 billion in the first quarter (ended March 31, 2023), while its gross profit came in at $160.60 million. Also, its operating income and adjusted EBITDA came in at $36.10 million and $175.40 million for the same period, respectively.
During the same period, its total current assets amounted to $2 billion, increasing marginally compared to $1.99 billion for the period that ended December 31, 2022.
The consensus revenue estimate of $1.58 billion for the second quarter (ending June 30, 2023) represents a 9.5% improvement year-over-year. The consensus EPS estimate for the ongoing quarter is expected to be $0.09. Its EPS is expected to improve by 24.7% per annum in the next five years.
Additionally, it surpassed the revenue estimates in each of its trailing four quarters and EPS estimates in three of its trailing four quarters, which is promising.
AXL’s shares have gained 4.5% over the past month to close the last trading session at $7.74.
AXL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Value. Within the same A-rated industry, it is ranked #30. Click here to see the other ratings of AXL for Growth, Momentum, Stability, Sentiment, and Quality.
Miller Industries, Inc. (MLR)
MLR manufactures and sells towing and recovery equipment. The company offers wreckers used to recover and tow disabled vehicles and other equipment, and car carriers, which are specialized flatbed vehicles with hydraulic tilt mechanisms used to transport new or disabled vehicles and other equipment, etc.
On May 31, MLR acquired Southern Hydraulic Cylinder, Inc., a reputable manufacturer of custom hydraulic cylinders, through an all-cash transaction, with a total purchase price of approximately $17.5 million. This acquisition is expected to enhance MLR's supply chain stability and contribute positively to its financial performance.
In terms of trailing-12-month ROTC, its 7.55% is 8.4% higher than the industry average of 6.97%. Likewise, its trailing-12-month asset turnover ratio of 1.78x is 123.6% higher than the industry average of 0.80x.
For the first quarter that ended March 31, 2023, MLR’s net sales increased 30.9% year-over-year to $282.28 million. Its gross profit rose 98.3% from the year-ago value to $30.42 million.
The company’s net income amounted to $9.22 million and $0.81 per share, representing increases of 346.5% and 350% from the prior-year quarter, respectively. Also, its income before income taxes increased 375% from the year-ago value to $11.79 million.
Over the past nine months, the stock has gained 55.2% to close the last trading session at $36.26.
It’s no surprise that MLR has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth. Out of 57 stocks in the same industry, it is ranked #29.
In addition to the POWR Ratings we stated above, we also have MLR’s ratings for Value, Momentum, Stability, Sentiment, and Quality. Get all MLR ratings here.
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LAZR shares were trading at $6.60 per share on Thursday afternoon, down $0.11 (-1.64%). Year-to-date, LAZR has gained 33.33%, versus a 12.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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