General

Forget Tesla; Buy this top-rated car stock instead

NASDAQ: TSLA

The automotive industry is facing increasing manufacturing challenges due to ongoing shortages of the semiconductor chips and raw materials. High inflation and rising interest rates can also hinder demand growth.

However, tax cuts, cost efficiency and long-term sustainability have led consumers to switch to electric vehicles (EVs). Rising investment by several countries to electrify vehicles should boost the industry’s long-term growth. The global electric vehicle market is expected to grow by a 18.2% CAGR reach $823.75 billion by 2030.

While EV giant Tesla, Inc. †TSLA) has skyrocketed in recent years and its financial situation has significantly improved, the stock appears to be trading at a valuation that no longer warrants future growth prospects. In terms of forward non-GAAP P/E, TSLA is trading at 59x, 429% higher than the industry average of 11.15x. Therefore, it can lose significantly amid the ongoing bear market.

On the other hand, Tokyo, Japan-based Honda Motor Co., Ltd. †HMC) seems well positioned to lead the industry in the coming years. Given the company’s solid growth prospects, the stock looks reasonable at its current valuation. In fact, it trades at a discount compared to its competitors. Therefore, HMC might be a better investment than TSLA.

Let’s take a look at what might boost HMC’s performance.

Honda Motor Co., Ltd. †HMC

HMC develops, produces and distributes motorcycles, cars and electrical products. It also sells spare parts and provides direct after-sales services through retailers, independent distributors and licensees.

HMC produced 244,368 vehicles in May 2022, an increase of 85.5% from the same period last year. On June 21, 2022, HMC’s Chinese subsidiary Honda Motor (China) Investment Co., Ltd. announced that its automobile manufacturing and sales JV, GAC Honda Automobile Co., Ltd. (GAC Honda), began construction of a new EV factory.

With an initial investment of RMB3.49 billion ($521.81 million) and the application of advanced manufacturing technologies, this highly efficient, smart and low-carbon EV plant will have an annual production capacity of 120,000 units from 2024.

For the fourth quarter of fiscal 2022 ending March 31, 2022, HMC’s revenue increased 10.5% year over year to 3.88 trillion ($28.57 billion). The company’s operating profit came in at ¥199.59 billion ($1.47 billion), down 6.4% from the same period last year.

Net profit came in at ¥144.50 billion ($1.07 billion), down 35.4% from the same period a year ago. HMC’s earnings per share came in at ¥ 73.02, indicating a 40.9% year-over-year decline. As of March 31, 2022, the company had ¥3.68 trillion ($27.09 billion) in cash and cash equivalents.

Over the past three years, HMC’s EBITDA and total assets have grown by 13.6% and 5.5%, respectively.

Analysts expect HMC’s earnings per share to grow by 2.2% year-over-year in fiscal 2023, ending March 31, 2023, and 15.1% in fiscal 2024. fiscal 2024.

In terms of forward EV/EBITDA, HMC’s 7.6x is comparable to the industry average of 8.07x. Are 0.62x ahead EV/Sales is 39.9% lower than the 1.03x industry average.

POWR ratings indicate better performance for HMC

While HMC has an overall A grade, which translates to Strong Buy in our patented POWR ratings system, TSLA has an overall C class, which is equivalent to Neutral. The POWR ratings are calculated by taking into account 118 different factors, each of which is optimally weighted.

HMC has an A grade for value, which is in line with valuation ratios that are lower than those in the industry. TSLA’s D grade for Value is in sync with the overvaluation. TSLA’s 8.44x forward EV/Sales is 716.3% higher than the 1.03x industry average.

HMC is rated B in terms of stability, which is in line with its lower volatility compared to broader markets. HMC has a beta of 0.96. TSLA’s D rating for stability reflects the beta of 2.13.

Of the 66 stocks in the Auto and Vehicle Manufacturers industry, HMC is number 1 and TSLA is number 30.

In addition to what we have mentioned above, our POWR Ratings system has assessed TSLA and HMC for sentiment, quality, growth and momentum. Get all HMC reviews here† Also, click here to see the additional POWR ratings for TSLA.

Our research shows that investing in stocks with an overall POWR of Buy or Strong Buy increases the likelihood of success. click here to access the top-rated stocks in the auto and vehicle manufacturers industry.


TSLA shares traded at $695.20 a share Wednesday afternoon, down $4.00 (-0.57%). Year-to-date, the TSLA is down -34.22%, versus the benchmark S&P 500 index’s gain of -18.71% over the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She has a passion for educating investors so that they can find success in the stock market. More…

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