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Volkswagen stock trades for about 3.7 times estimated 2023 earnings.
Jens Schlueter/AFP via Getty Images
Volkswagen
stock sometimes can feel like it makes no sense, as can shares of electric vehicle start-ups like
Rivian Automotive
.
But for investors, sometimes market disconnects can spell opportunity.
Volkswagen
(ticker: VOW.Germany) shares jumped Friday after the company reported numbers that it had already released three weeks ago.
Its stock climbed 10.6% in overseas trading Friday, while its American depositary receipts soared 9.6%. The
S&P 500
and
Dow Jones Industrial Average
rose 1.6% and 1.2%, respectively.
The German auto giant’s stock might be getting a boost because its annual dividend is rising about 16% to EUR8.70 per ordinary share from EUR7.50 a year earlier. Another possible factor: VW expects to delivery about 9.5 million vehicles in 2023, up from about 8.9 million in 2022. Still, none of that is much of a surprise, given what
Stellantis
(STLA) and other U.S. and European auto makers have reported.
It is VW’s valuation that deserves a closer look. Even with Friday’s gains, VW shares are trading for about 3.7 times estimated 2023 earnings. VW shares are actually cheaper than that: In one way, they are practically free.
VW owns roughly 75% of
Porsche AG
(P911.Germany), the maker of the Porsche sports car. That stake is worth $83 billion, while VW’s entire market capitalization is about $80 billion.
Excluding Porsche earnings, VW generated about $16 billion in operating profit last year. That’s more than the $14.5 billion operating profit
General Motors
(GM) earned in 2022, and GM has a market cap of about $56 billion.
One reason for the discount is VW is complicated, with a number of brands, including Audi, Lamborghini, and Bentley. It has many preferred and ordinary stocks and many owners, including labor groups and another entity called
Porsche Automobil
(PAH3.Germany). That is a holding company that holds VW stock, not the Porsche car company.
Some discount for complexity is warranted, but free?
VW isn’t the only stock in the auto space with a puzzling valuation. Rivian (RIVN) shares dropped 18% earlier this week after the company’s outlook for 2023 production missed Wall Street estimates. Shares traded at $16.92 early Friday, but Rivian has more than $13 in cash per share on the books. The stock is trading for less than $4 per share net of cash.
That works out to a multiple of 0.5 times estimated 2023 sales.
Tesla
(TSLA), which is profitable, trades for about six times sales. Rivian is using about $6 billion in cash a year.
Value investors might want to endure VW’s complexity and check out the stock. Growth investors might want to look at Rivian. There is no guarantee either stock will work, but sometimes market oddities work out in investors’ favor.
Write to Al Root at allen.root@dowjones.com
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