Audi AG’s Current Price Is Excessively Low
Summary
- This idea was uncovered by screening through the adjusted ROA, P/E, and P/B ratios of 519 companies in the Consumer Discretionary sector with market caps of $500mn or above.
- At €636.55 per share, Audi’s Adjusted ROA of 6.9% and Adjusted P/B of 0.6x drive an Adjusted P/E of 9.6x.
- This set it up as an interesting long deep value idea given its fundamentals.
- Audi’s stock has been punished since the VW CO2 emissions scandal in September 2015 as investors fear large fines and customer backlash.
- These fears ignore consistent, strong historical profitability, substantial liquidity to handle fines, and expanding global operations.
Audi AG is in the Automobile Manufacturers sub-industry of the Consumer Discretionary sector. Its stock price is €636.55 as of August 1, 2016, with a market capitalization of €27.4bn. Audi AG is traded on the Frankfurt Stock Exchange (FWB:OTCPK:AUDVF), with headquarters in Ingolstadt, Germany.
To better analyze the company’s performance and valuation, we used the Valens-Research.com database, as it is difficult to make investment decisions without using performance and valuation metrics that have been adjusted for distortions and inconsistencies in financial statement reporting under both GAAP and IFRS. (For more detail, please follow this link.)
After careful analysis of both historical trends, as well as current valuations and analyst estimates, we believe the embedded expectations of Audi make it a very interesting deep value idea.
With market expectations for ROA’ declining to 1.4%, well below cost-of-capital, Audi represents a fantastic value considering its history of strong fundamentals. Despite being dramatically oversold, following news of parent company Volkswagen’s CO2 emissions scandal, business fundamentals at Audi remain robust and global growth potential continues to appear promising. Additionally, considering that the firm has over $19bn in cash, fines of as much as $1bn as penalty for cheating emissions tests would be unlikely to damage the liquidity profile of the company. Moreover, this would certainly not impact future operations. Therefore, with consistent historical growth and profitability, Audi represents a deep value at just 0.6x V/A, with the possibility for multiple expansion and equity upside of as much as 81% as the uncertainty of lawsuits and fines fades away.
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