Volkswagen AG Stock Shows Every Sign Of Being Significantly Overvalued

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GF Value
Apr 22, 2021
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The stock of Volkswagen AG (OTCPK:VWAPY, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $27.6 per share and the market cap of $138.4 billion, Volkswagen AG stock is believed to be significantly overvalued. GF Value for Volkswagen AG is shown in the chart below.

Volkswagen AG GF Value Chart

Because Volkswagen AG is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 5.81% annually over the next three to five years.

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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Volkswagen AG has a cash-to-debt ratio of 0.34, which is in the middle range of the companies in Vehicles & Parts industry. GuruFocus ranks the overall financial strength of Volkswagen AG at 4 out of 10, which indicates that the financial strength of Volkswagen AG is poor. This is the debt and cash of Volkswagen AG over the past years:

debt and cash

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Volkswagen AG has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $241.3 billion and earnings of $2.019 a share. Its operating margin of -2.50% worse than 82% of the companies in Vehicles & Parts industry. Overall, GuruFocus ranks Volkswagen AG's profitability as fair. This is the revenue and net income of Volkswagen AG over the past years:

Revnue and Net Income

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Volkswagen AG is -2%, which ranks in the middle range of the companies in Vehicles & Parts industry. The 3-year average EBITDA growth rate is 2.5%, which ranks in the middle range of the companies in Vehicles & Parts industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Volkswagen AG's ROIC was -0.87, while its WACC came in at 3.49. The historical ROIC vs WACC comparison of Volkswagen AG is shown below:


In short, The stock of Volkswagen AG (OTCPK:VWAPY, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Vehicles & Parts industry. To learn more about Volkswagen AG stock, you can check out its 30-year Financials here.

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