The automotive industry has faced several challenges since the onset of the pandemic due to supply chain bottlenecks, production shutdowns, and intensifying semiconductor and labor shortages. Moreover, aggressive policy tightening by the Fed has increased car loan rates to 11-year highs, dampening demand. This has led to a slowdown in the auto parts manufacturing industry.
However, increasing consumer interest in electric vehicles amid rising environmental concerns and inflating fuel prices should bolster the industry’s growth prospects. Growing competitiveness in the auto industry and investments in technological advancements should support the auto part makers. The motor vehicle parts market is expected to grow at a 7.9% CAGR from 2021-2026.
While we think quality auto parts stock, O’Reilly Automotive, Inc. (ORLY), could be an ideal addition to your portfolio, Aeva Technologies, Inc. (AEVA) might be best avoided considering its bleak fundamentals.
Stock to Buy:
O’Reilly Automotive, Inc. (ORLY)
ORLY and its subsidiaries operate as a retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States.
For the fiscal third quarter ended September 30, 2022, ORLY’s sales increased 9.2% year-over-year to $3.80 billion. Its gross profit came in at $1.93 billion, up 6.4% year-over-year. Also, its EPS came in at $9.17, up 13.6% year-over-year.
ORLY’s revenue is expected to increase 7% year-over-year to $14.26 billion in fiscal 2022. Its EPS is expected to increase 5.3% year-over-year to $32.76 in the same period.
Over the past year, the stock has gained 31.2% and 18% year-to-date to close the last trading session at $833.51.
In terms of its forward P/E, ORLY is currently trading at 25.41x, 77.2% higher than the industry average of 14.35x. Its forward EV/EBIT multiple of 19.94 is 62.6% higher than the industry average of 12.27.
ORLY’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ORLY has an A grade for Quality and a B grade for Sentiment. Within the B-rated Auto Parts industry, it is ranked #15 out of 66 stocks.
Beyond what is stated above, we’ve also rated ORLY for Value, Growth, Momentum, and Stability. Get all ORLY ratings here.
Stock to Avoid:
Aeva Technologies, Inc. (AEVA)
AEVA, through its frequency-modulated continuous-wave (FMCW) sensing technology, designs a 4D LiDAR-on-chip that enables the adoption of LiDAR across various applications, including automated driving, consumer electronics, consumer health, industrial automation, and security application.
AEVA’s total revenue declined 60.6% year-over-year to $1.37 million for the third quarter that ended September 30, 2022. Its operating loss came in at $37.80 million, up 38% year-over-year. Net loss stood at $36.50 million in the same period, while its net loss per share was $0.17, up 30.8% from the prior-year period.
Analysts expect AEVA’s revenue to decline 14.7% year-over-year to $7.90 million in fiscal 2022. Its EPS is estimated to slump 43.9% year-over-year to negative $0.59 in the same period.
The stock has declined 79.3% over the past year and 76.2% year-to-date to close the last trading session at $1.80.
In terms of its forward Price/Sales, AEVA is currently trading at 49.67x, 1,946.6% higher than the industry average of 2.43x. Its forward EV/Sales multiple of 4.49 is 77.7% higher than the industry average of 2.53.
AEVA’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall F grade, equating to a Strong Sell in our POWR Ratings system.
It has a D grade for Stability, Growth, Value, Momentum, and Quality. In the same industry, the stock is ranked #65. Click here to access AEVA ratings for Sentiment.
ORLY shares were trading at $839.78 per share on Wednesday morning, up $6.27 (+0.75%). Year-to-date, ORLY has gained 18.91%, versus a -19.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal’s passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More…
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