What are we looking for?
Auto sales should rise 3.4 per cent this year, with Europe bouncing back from 20-year lows and China continuing to post double-digit growth, according to Reuters.
New cars offer improved fuel efficiency and technological advances, and in this low interest rate environment consumers just may opt for a new vehicle instead of repairs to the old jalopy. Today my colleague Rob Belanger and I are looking at car manufacturers around the globe.
We started with companies larger than $10-billion (U.S.) in market capitalization, and sorted them from the largest to the smallest.
Enterprise value divided by earnings before interest, taxes, depreciation and amortization (EV/EBITDA) is one of the most commonly used valuation metrics. We are looking for a low number.
Companies had to have positive sales growth over the past 12 months to make our screen, which means BMW and Renault did not make the list.
Operating margin is a measurement of what proportion of a company’s revenue is left over after paying for variable costs of production such as wages, promotion, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt, and the higher the better. Only companies with positive numbers made the screen.
Inventory days are the number of days it takes a company to sell its average inventory over the past 12 months.
We also included research and development expenses as a percentage of sales.
Return on equity (ROE) measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. A high number is ideal, and only companies with an ROE over 5 per cent made our screen, and Tesla did not.
What did we find?
One thing that stands out is the massive market capitalization of Toyota Motor Corp. The company is larger than Ford, Honda and General Motors combined.
Great Wall Motor Co. is China’s largest manufacturer of SUVs and pickup trucks. Among its products, the company makes a top-selling pickup called the Wingle 5. Great Wall leads in sales growth, operating margin and ROE.
SAIC Motor Corp. has a 23-per-cent market share in China, and goes through its inventory faster than any other company on our screen.
It is advisable to conduct further research or contact an investment professional before buying any of the companies listed here.
Largest auto makers with positive sales growth
Source: Bloomberg and Wickham Investment Counsel Inc.