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Alberto Abaterusso
Alberto Abaterusso
Articles (1430) 

Is Volkswagen a Bargain?

The German automaker is granting a compelling dividend yield

October 01, 2018 | About:

If U.S. investors also consider non-U.S. markets when seeking value, the odds of finding a good stock increases.

I bumped into the German automaker Volkswagen AG (VOW.DE) while I was screening the European stock exchange. The stock represents a company with good long-term fundamentals, and the share price is compelling on the Xetra platform.

The share price has been quite flat over the last 12 months of trading. Following a downtrend that started in the first quarter of 2018, however, the stock underperformed the S&P 500 index by nearly 14% and is trading far below the 200-day simple moving average line though on par with the 100-SMA line and a little bit above the 50-SMA line.

The market value was 150.10 euros ($175.52) per share at close Friday.

The share price was also a few dollars above the 52-week low of about $154.82 and 50% from the 52-week high of approximately $224.29.

Volkswagen AG has a market capitalization of about $87.7 billion. The price-book ratio is 0.66 versus an industry median of 1.45, the price-earnings ratio is 6.57 versus an industry median of 15.55 and the price-sales ratio is 0.32 versus an industry median of 0.78.

The German automaker giant is also publicly traded on the Euronext and other U.S. over-the-counter stock markets. But the Xetra platform represents the most important stock exchange system for shareholders.

The fall in the share price has driven the forward dividend yield up to 2.6%, which is nearly 65% higher than the dividend yield of 1.75% of the S&P 500 index and above the yield on one-year U.S. Treasury bills. The forward dividend yield is according to the share price at close Sept. 28.

Volkswagen AG is one of the major producers in the world. The company has been active in the automotive industry since 1937, produces and markets cars and vans, and provides jobs to about 642,300 people worldwide. It had a sales turnover of about $275 billion in fiscal 2017, which was a nearly 21% increase year over year. The adjusted operating profit was about $20.4 billion, a 17% growth from fiscal 2016. The company achieved a record with 10.7 million vehicles delivered.

The below chart illustrates the trend in total revenues of Volkswagen over the last five full fiscal years.

Looking ahead the company is expecting a weaker momentum than in 2017 due to protectionist tendencies, geopolitical tensions and structural deficits in individual countries. Turbulence in the financial markets is also predicted to impinge on the growth.

For fiscal 2018, Volkswagen AG predicts 5% growth in total sales revenues compared to 2017.

Total assets are valued around $506 billion and total liabilities are valued at $375 billion.

As of the most recent quarter, the company had more than $35 billion in cash on hand and short-term securities. The business is highly leveraged with a total debt-equity ratio of 148.7% versus an industry median of 51%.

But the German car producer giant is not having any problem to carry such a financial burden. In fact, of the trailing 12-month operating cash flow, only a 10-15% portion is used for financial obligations. That is because the company can generate an operating cash flow of about $7.5 billion to $8 billion every year, of which over 90% can be used to distribute dividends and for business growth purposes. 

Disclosure: I have no positions in any security mentioned in this article.

About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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