In this article, I have evaluated prominent auto stocks, QuantumScape Corporation (QS) and Genuine Parts Company (GPC), to predict which could be a better buy this year. After thoroughly evaluating these stocks, I think GPC is a superior choice to QS for the reasons discussed in this article.
The increased usage of technological advancement in the global auto parts market, the digitalization of automotive repair and maintenance services, and the high demand from the aftermarket are expected to drive growth in the auto part industry. As a result, the auto parts market is estimated to grow at a CAGR of 3.6% until 2027.
Additionally, the trajectory of global auto parts manufacturing market growth is intrinsically tied to the automotive sector's evolution. As consumer preferences shift towards more fuel-efficient, technologically advanced, and sustainable vehicles, auto parts manufacturers have had to pivot and adapt.
The rise in electric vehicles, for instance, has led to increased demand for batteries, electric drivetrains, and advanced sensor systems. The global auto parts manufacturing market is projected to grow at a CAGR of 6.3% until 2028.
QS has declined 6.5% over the past nine months compared to GPC’s 38.5% gain but QS gained 4% over the past six months compared to GPC’s 13.1% gain.
Therefore, here are the reasons why I think GPC might perform better in the near term:
Recent Developments
On November 14, 2023, GPC declared a regular quarterly cash dividend of $0.95 per share on the company's common stock.
On August 1, 2023, GPC announced that its wholly-owned automotive distribution company Alliance Automotive Group (AAG) acquired Recambios y Accesorios Gaudi, S.L. GPC’s Chairman and CEO Paul Donahue said, “We are pleased to expand our European Automotive footprint with the addition of Gaudi.”
“With this acquisition, we are broadening our leadership position in Spain, Europe’s fifth largest automotive market, while extending the opportunities for rollout of the NAPA brand and enhancing the profitability of our European business,” he added.
Recent Financial Results
QS’s loss from operations increased marginally year-over-year to $120.87 million for the fiscal third quarter that ended September 30, 2023 came in at $23.35 billion. Its net loss attributable to common stockholders came in at $110.62 million, while its net loss per share came in at $0.23.
On the contrary, for the third quarter ended September 30, 2023, GPC’s net sales increased 2.6% year-over-year to $5.82 billion. Its adjusted net income rose 10.7% over the prior-year quarter to $351.20 million. The company’s gross profit increased 6.5% year-over-year to $2.11 billion. Its adjusted EPS came in at $2.49, representing an increase of 11.7% year-over-year.
Past And Expected Financial Performance
QS’s total assets have increased at a CAGR of 126.3% over the past three years. Its EPS is expected to be negative $0.78 this year, negative $0.20 in the current quarter ending December 2023, and negative $0.15 in the next quarter ending March 2024.
Conversely, Over the past three years, GPC’s total assets grew at an 8.1% CAGR. Analysts expect GPC’s revenue to increase by 4.9% this year and 2.4% in the fourth quarter ending December 2023. Its EPS is expected to be $9.27 this year and $2.20 in the current quarter ending December 2023.
Valuation
QS’s trailing-12-month P/B multiple of 2.55 is lower than GPC’s 3.40.
Profitability
QS's trailing-12-month ROCE of negative 31.5% is lower than GPC’s 31.89%. In addition, QS’s trailing-12-month ROTC of negative 19.43% is lower than GPC’s 13.11%.
Thus, GPC is more profitable.
POWR Ratings
QS has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, GPC has an overall rating of B, translating to a Buy. 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. QS has a D grade in Quality. Its trailing-12-month ROCE and trailing-12-month ROTC of negative 31.52% and 19.43% are lower than the industry averages of 11.39% and 6.05%.
On the other hand, GPC has a B grade in Quality. Its trailing-12-month ROCE of 31.89% is 180% higher than the industry average of 11.39%. Its trailing-12-month ROTC of 13.11% is 116.6% higher than the 6.05% industry average.
Moreover, QS has an F in Sentiment in sync with its unfavorable analyst estimates. In contrast, GPC has a B grade for Sentiment consistent with favorable analyst estimates.
Among the 62 stocks in the A-rated Auto Parts industry, QS is ranked #61, while GPC is ranked #14.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Growth, and Stability. Get all QS ratings here. Click here to view GPC ratings.
The Winner
With the advancements in technology and growing the demand for electric vehicles in the global market, the auto parts industry is expected to see robust growth. Industry players such as QS and GPC should benefit from these industry tailwinds.
However, GPC's high profitability and favorable analyst estimates make it the better buy.
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 Parts 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.
GPC shares were trading at $139.53 per share on Friday morning, up $1.06 (+0.77%). Year-to-date, GPC has declined -17.52%, versus a 26.07% 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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