Volkswagen (VWAGY) Analysis
Chart done on hourly timeframe. American investors have looked the other way when it comes to many offshore investments in recent years, placing the majority of their capital in American companies, however opportunities in foreign investments will eventually gain traction as portfolio diversification becomes a highlight again. Volkswagen is one of the companies that may benefit from those times when they come, largely because of their reputation and their large portfolio of car companies. VW owns brands like Audi, Porsche, Bentley, Lamborghini, Bugatti…and more, making them a conglomerate in their industry that’s nearly unmatched. Their dominance reflects in their revenue, which finished last year at nearly 350B. A standout number for VW is also their net income, which was a positive 17.31B in 2023, and while that may seem like a small profit margin, it is quite a large one for a car manufacturing company. Car manufacturers often suffer from little to no profit margins because of their industrial demand, but VW’s long history has given them enough experience to maintain positive net income over the years.
Trading at a market cap of only 59B and a price to earnings ratio of 3.67, it is obvious that this company is undervalued and has the chance to make a comeback when investors look for foreign investments, however the downside for them is that not many investors are often too excited to buy vehicle companies. Unlike tech companies, vehicle manufacturers are slow to grow and their returns are often muted by their expensive cost of labor and parts, hence making them a less sought investment. And with a recent disappointment from American car companies like Tesla and Ford, investors are even less excited about investing in vehicle manufacturers. However despite the worries of the current times, VW’s numbers are solid and if markets pay attention, they may take the opportunity.
Weakness: the only weakness prevalent on VW’s balance sheet is their free cash flow. VW’s free cash flow is at a negative 12.09B TTM, leaving them at risk of black swan events. The company’s revenue and profitability should help them move back into positive territory, but investors aren’t likely to buy it up until they see a better trend in free cash flow.
In the case of an economic downturn, demand for vehicles will likely come down, which will ultimately hurt companies like VW, but with a price to earnings ratio of only 3.67, it’s hard to imagine investors will ignore this company. It may take time and the ride may be rough, but chances are it will make a come back.