In this article, I have evaluated prominent stocks, Rolls-Royce Holdings plc (RYCEY) and Tesla, Inc. (TSLA), to predict which auto stock will shine in 2024. After thoroughly evaluating these stocks, I think RYCEY is a superior choice to TSLA for the reasons discussed in this article.
Rapid population growth, urbanization, infrastructure development, and industrial expansion are expected to drive commercial vehicle sales growth. Also, the escalating demand for high-end passenger vehicles is likely to enhance the performance of the market. The global automotive market is projected to grow at a CAGR of 6.9% until 2030.
Additionally, as concerns over climate change and air pollution intensify, consumers and industries are increasingly turning to electric vehicles to reduce their carbon footprint for a greener future. This growing global momentum is expected to propel the EV market into a transformative phase, with investments driving the expansion of EV adoption across the world.
The global electric vehicle market is expected to grow at a CAGR of 13.7% until 2030.
While RYCEY gained 46.3% over the past three months compared to TSLA’s 8.7% gain, RYCEY also gained 95.4% over the past six months compared to TSLA’s 4.5% gain.
Therefore, here are the reasons why I think RYCEY might perform better in the near term:
Recent Developments
On December 15, RYCEY announced Turkish Airlines would order 100 Trent XWB-84 engines and 40 Rolls-Royce Trent XWB-97 engines. This would make Turkish Airlines the world’s largest operator of Trent XWB engines.
Recent Financial Results
During the half year that ended June 30, 2023, RYCEY’s revenue increased 14.3% year-over-year to £7.52 billion ($8.32 billion). Its profit for the period came in at £1.22 billion ($1.35 billion), compared to a loss of £1.56 billion ($1.73 billion) in the previous-year. Also, loss per ordinary share attributable to ordinary shareholders came in at £14.70p, compared to negative £19.29p in the previous-year.
On the contrary, TSLA’s total revenues for the fiscal third quarter that ended September 30, 2023 came in at $23.35 billion, while its adjusted gross profit declined 22.4% year-over-year to $4.18 billion. Its net income attributable to stockholders declined 43.7% year-over-year to $1.85 billion, while its net income per share of common stock attributable to common stockholders declined 44.8% year-over-year to $0.58.
Past And Expected Financial Performance
RYCEY’s revenue has increased at a CAGR of 2.4% over the past three years. Its revenue is expected to increase 23% this year. Its EPS is expected to increase 373.4% this year.
Conversely, TSLA’s revenue has increased at a CAGR of 50.4% over the past three years. Its revenue is expected to increase 19.3% this year and 5.1% in the fourth quarter ending December 2023. However, its EPS is expected to decline 21.8% this year, 38.2% in the current quarter ending December 2023, and 4.1% in the next quarter ending March 2024.
Valuation
RYCEY’s forward P/S multiple of 1.70 is lower than TSLA’s 8.55. Additionally, RYCEY’s forward EV/Sales multiple of 1.91x is lower than TSLA’s 8.38x.
Thus, RYCEY is more affordable.
Profitability
RYCEY's trailing-12-month EBIT margin of 8.49% is lower than TSLA’s 11.18%. In addition, RYCEY’s trailing-12-month net income margin of 9.80% is lower than RYCEY’s 11.21%.
POWR Ratings
RYCEY has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, TSLA has an overall rating of D, translating to a Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. RYCEY's B grade for Growth is in sync with positive performance in the most recent quarter. On the other hand, TSLA's D grade for Growth is in sync with its poor performance.
Moreover, RYCEY has a B grade for Stability, which is justified by its 24-month beta of 0.93. On the other hand, TSLA has a D grade for Stability, which is in sync with its 24-month beta of 1.90.
Among the 52 stocks in the B-rated Auto & Vehicle Manufacturers industry, RYCEY is ranked #10, while TSLA is ranked #39.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Sentiment, and Quality. Get all RYCEY ratings here. Click here to view TSLA ratings.
The Winner
With the growing the demand for electric vehicles in the global market, the automotive industry is expected to see robust growth. Industry players such as RYCEY and TSLA are well-positioned to benefit from these industry tailwinds.
However, RYCEY's low beta value and affordability makes it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
RYCEY shares were trading at $3.80 per share on Thursday afternoon, down $0.01 (-0.26%). Year-to-date, RYCEY has gained 255.14%, versus a 26.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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