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Volkswagen shares are trading at about 3.7 times estimated 2023 earnings.
Jens Schlueter/AFP via Getty Images
Volkswagen
stocks can sometimes feel like they don’t make sense, just like stocks of electric vehicle start-ups
Rivian Automotive
.
But for investors, market decoupling can sometimes mean opportunity.
Volkswagen
(ticker: VOW.Germany) Shares rose Friday after the company reported figures it released three weeks ago. Shares rose 7.4% in overseas trade, while US certificates rose 5.5% in early trade. The
S&P 500
And
Dow Jones Industrial Average
increased by 1.3% and 1.4% respectively.
Shares of the German car giant may receive a boost as its annual dividend rises about 16% to EUR 8.70 per common share, compared to EUR 7.50 a year earlier. Another possible factor: VW expects to deliver about 9.5 million vehicles in 2023, up from about 8.9 billion in 2022. Still, none of that comes as much of a surprise given the
Stellantis
(STLA) and other US and European automakers have reported.
It is VW’s valuation that needs to be looked at more closely. Even with Friday’s earnings, VW shares trade for about 3.7 times estimated 2023 earnings. VW shares are actually cheaper than that: in a way, they’re practically free.
VW owns about 75% of it
Porsche AG
(P911.Germany), the maker of the Porsche sports car. That stake is worth $83 billion, while VW’s total market capitalization is about $80 billion.
Excluding Porsche revenue, VW generated about $16 billion in operating profit last year. That’s more than operating profit of $14.5 billion
General engines
(GM) in 2022, and GM has a market cap of approximately $56 billion.
One reason for the discount is that VW is complicated, with a number of brands including Audi, Lamborghini and Bentley. It has a lot of preferred and common stock and many owners, including unions and another entity called
Porsche automobile
(PAH3.Germany). That is a holding company that holds VW shares, not the Porsche car company.
Some discount for complexity is warranted, but free?
VW isn’t the only stock in the car space with a puzzling valuation. Shares of Rivian (RIVN) fell 18% earlier this week after the company’s outlook for 2023 manufacturing missed Wall Street estimates. Shares traded at $15.91 early Friday, but Rivian has more than $13 in cash per share on its books. The stock is trading for approximately $2.60 per share after cash.
This amounts to a multiple of 0.5 times the estimated turnover in 2023.
Tesla
(TSLA), which is profitable, trades for about six times its revenue. Rivian uses about $6 billion in cash per year.
Value investors may want to get through VW’s complexities and take a look at the stock. Growth investors might want to look at Rivian. There’s no guarantee that either stock will work, but sometimes market oddities work in investors’ favor.
Write to Al Root at [email protected]
