The auto sector
Valuation multiples are widely used by investors to compare companies that are similar in size or business type in capital-intensive industries such as the automobile (IYK) sector. Let’s compare the valuation of mainstream auto companies Ford (F), Toyota (TM), General Motors (GM), and Fiat Chrysler (FCAU) this month.
Comparing automakers’ valuation
As of November 28, Ford’s forward EV[1. enterprise value]-to-EBITDA multiple was 13.0x, much higher than that of home market competitor GM (8.4x) and Japanese peer Toyota (8.9x). These valuation multiples were calculated based on the automakers’ estimated earnings for the next 12 months. About four months ago, GM’s and TM’s EV-to-EBITDA multiples were lower, at 7.6x and 8.1x, respectively.
Among the auto giants we’re focusing on, Fiat Chrysler has the lowest EV-to-EBITDA and forward PE multiples, of 1.9x and 4.5x, respectively. The company’s higher leverage, which increases its risk, could be behind its low valuation. On November 28, Ford’s forward PE multiple was at 7.1x, higher than GM’s 6.1x but lower than Toyota’s 7.7x.
Market sell-off and tariff fears
In the first ten months of this year, US truck demand stayed strong, while total vehicle sales remained weak. In the fourth quarter so far, the broader market sell-off has pressurized auto stocks.
Also, steep auto tariffs could continue to hurt automakers’ profits and drive their earnings estimates and valuation lower, which is why auto investors should keep a close eye on the global trade situation in December. Continue to the next part, where we’ll look at auto part companies’ stock price movement this month.