I am a newbie investor that has some investment wins but I know I have a long way to go so to help my journey I'm going to start writing opinion pieces based on the research I've done, maybe it can help a few other new investors who want to learn or it can catch the attention of more knowledgeable investors who can critique me. This is my analysis for the legacy carmakong company, Stellantis.
I used the 2024 H1 report, since I think the 2023 report would have a more stellar report and less to do with the current market outlook for Stellantis
In general, I think the market has fairly priced Stellantis right now. And this does not contend with the fair valuation for Stellantis. The market right now (instituitions and speculative retail traders), is seeking short term high gain trades, so a long term bet would not be their goal, hence why I think the sell off from Stellantis. Their 2023 perfomance showed that they capitalised from the peak of car sales and became Europe's most profitable car maker. But 2024 showed a quick change, with future outlook looking bleaker. Car sales industry can be cyclical and Stellantis is already expecting 2025 to be a challenging year. Stellantis had a lot of free cashflow and a cash pile that could have been useful for weathering downturns.
However the company saw fit to pay out a chunk of it to investors, do share buybacks and invest more of it in acquisition of more assets. Now, conventionally while all those sound like good things, I have to wonder if Stellantis' decision to leverage more into expanding its business is a wise one when the whole automotive industry is expecting car sales to decline as a whole. It is still a big market, but with shrinkage, the market is gonna be even more competitive for legacy car makers.
I see one of two scenarios.
1. Stellantis' new expansion is not able to capture a decent chunk of the market, their ROA drop and they struggle to stay decently profitable in the immediate future.
2. Stellantis' measures put them ahead of the other car makers, they secure a decent return on their new investments and it sets up a ramp for the company to secure its growth.
I believe Stellantis is chasing scenario 2. It is risky, but historically the company's performance has shown that they know how to manage themselves and steadily grow this company over the years to a point that they could rocket in growth after 2020. So I have confidence in the company's strategy, the only real concern I have would be the current state of leverage in this company.
In 2023, only a small portion of loans had been paid off, and new ones had been taken up (in the form of Asset Backed Securities notes) that mostly offset the difference. While it has gone to acquisition which shows the company's willingess to expand, their negative cashflow and lack of "breathing room" poses a risk that should they have one too many bad years, these loans will begin to put immense pressure on them.
In my opinion the high dividend payout while rewarding for investors could have perhaps been better spent on paying off more loans or a cash pile safety cushion for the company during tough years.
But this is just opinion and Stellantis management would have a great deal more insight that I have, and my long term bet is that Stellantis will reach 33 dollars a share somewhere in the next 10 years. But the market wouldn't be wrong for wanting to price it as such a low cost right now, considering if you were betting that Stellantis reach a valuation close to that, in the short term future, that would be a rather aggressive bet.
2024 had a 7.8% profit margin
2023 had a 13.76% profit margin
2024 paid more in taxes from income compared to in 2023
Net revenue decreased by 13.6% from 2023 to 2024, but revenue cost decreased by 9.2% from 2023 to 2024.
However the cost of revenue against net revenue ratio was 4% higher, indicating that their cost cutting measures weren’t that effective.
It seems the main reason for the operating cost decline is due to the lower volume of sales so requiring less car shipments
Their restructuring efforts also doubled in costs most likely in due to part of downsizing packages. Workforce reductions
They lost about 50% in tax benefit
18% dip in unit sales in north america
A lot of the cashflow was used to pay off debt and dividends and share buybacks, however new debt of roughly the same amount as the paid off debt, was incurred,
Long term assets increased by about 9 billion
Short term assets reduced by 4.5 billion
Long term debt increased by 2.5 billion
Basically I summarise that while Stellantis i think fair value for long term is 33, they leveraged too much, have negative cash flow (for 2024 only), and 2025 is expected to be difficult year for car sales, that I think market valuation of 13 dollars for now is okay
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