Volkswagen (VOW) is now trading at $118, down 53% from it's 52-week high of $254, with a P/E ratio of 5.5.
The penalty from the emissions scandal could be as high as $18B, but I expect a company such as Volkswagen, which does in excess of $200B per year in sales, will eventually recover and bounce back from this event. What are your thoughts? Does this news present a good buying opportunity and is now a good time to jump in and pick up some shares?
It is tempting looking at the EV/EBITDA multiple :-)
update: pulled trigger...
You are looking at current EV/EBITDA multiple which is much higher than what it will be in the future. This scandal is going to significantly effect sales and fines could reach upwards of 10+ Billion and that is only from the government. All of the consumers will likely sue in a class action suit which could reach billions as well.
The stock is only down 50% from its highs while going through a massive scandal that will effect it for the next couple of years. Compare this to the BP oil spill, the stock went down around 50% and is trading at the level 5 years later. I will argue that this will be worse for Volkswagen because BP was still selling oil, effects on sales was smaller than what will happen with Volkswagen and their tarnished brand.
On top of all of that global growth concerns are hurting the automobile industry worldwide. I think Volkswagen has a lot of negatives against it and only being down 50% from its highs is not attractive enough. But good luck.
I'm glad you mentioned BP. BP hit bottom at $27 per share in June of 2010 which was a few months after the spill, and over the next seven months the price increased 81% to $49. The price has since come back down, but there was definitely money to be made by trading on the overreaction of the market at the time of the spill.
Obviously these are two different situations and it's unclear where the bottom is, but even a 5 year stretch for Volkswagen to return to it's 52-week high would yield an annual return of 17%. A more optimistic 3 year time horizon would yield an annual return of 29%. There are risks in terms of future revenue losses from damages to the brand, long-term impacts from the emission issue, and added costs to future vehicles based on new requirements, but I think history has shown that consumers & investors have short-term memories. I bet all will be forgotten within 3 years and it will be business as usual.
I think you are spot on. A company this big has to recover eventually. Between pulling the trigger now or waiting a little bit, I would be more tempted to pull the trigger as I don't think it could be any worse than this!!
Mitigate risk and buy LEAPs.
I think you should consider that relative to peers- valuation is not outrageously cheap and for good reason.
I remember reading about a high proportion of revenue coming from china and emerging markets. Couple high exposure to China/EM with an unmitigated PR disaster and you could be very early. That's not even taking into account that a non-zero part of thier business will be essentially dead for quarters if not years.
If there's smoke, there's fire.
This should not be considered invesmtent advice yada yada yada...
^^^ I really don't think people will care all that much about this in 5 years. There is a huge disparity in public opinion between a massive oil spill and skewing emission test results.
I would look to see if it drags any other autos down with it. I remember JPM being hit with the scandal in 2012, their stock was hit with uncertainty. Some other bank equities took a dive as well and presented great opportunities, as they didn't have any direct problems associated with JPM's Whale issue. Citi was a great buy and made a nice return. Might be good to look at the other auto manufacturers now.
Volvo and Volkswagen are not the same thing.
I know - that was a typo. Edited now.
i don't think its time to buy yet. this will likely result in criminal charges and when that hammer comes down, i'll be buying.
Will without a doubt be a good value buy in a few years. Their sales grew like crazy in the past few years and the only variable that changed recently was the emissions scandal; once they surmount restrictions preventing them from selling in certain regions, it will be business as normal. The biggest risk is the material loss of brand image, which would cause them to lose market share to competitors
The closest comparable is BP post-Deepwater Horizon with the added twist of malicious intent. A significant rebound in the short to medium term is certainly possible but expect for this issue to weigh on the company for a long-time, and the fines to blow most expectations away (~500,000 vehicles affected in the US, 11 million worldwide...).
On the one hand, VW's scandal really isn't that big of a deal. They lied about emission standards. So what? There are companies that lie about killing people. Looking at you peanut manufacturing guy that's gonna do 28 years. On the other hand, when a fraud such as this comes out other frauds tend to be discovered. So, IMO I think the real question is whether you think more frauds will surface. If you don't, VW can swallow 10-18 billion in fines, and still be fine. I'm having trouble pulling it up, but I think they have 200 billion in revenue.
As a side note, how would we invest in it? The stock that comes up on google doesn't have the same ticker symbol as the one in fidelity.
You can buy it under the ticker VLKAY which is an American Depository Receipt equivalent to 1/5th of a VOW share
I found that one, but it isn't exactly made clear that it is an ADR. Is there any way to go trade VOW? Can't do options with VLKAY.
If the scandal sticks to VW and VW only, then I do not see it being that big of a deal, especially in the long run. However that all goes out the window if Audi and Porsche are found to have used this cheat device. Audi and Porsche are the heavy weights in VAG and the margins in those companies is basically like printing money. For a company like Audi that is competing against MB and BMW, the admission of a cheat device can have a shocking effect on brand perception. That 11 million vehicle count VW reported could increase to 13-14 million, but the addition of even 2-4 million high margin, low volume vehicles can be devastating in the near term for the company.
So, the problem with the VW's from what I have seen is that they actually emit an illegal amount of pollution. (What VW did was create software that allowed it to past the emissions test before sending it out, and then the software cut off when it left to go into distribution). The real problem is that illegal amount of pollution, as it is an ongoing violation as opposed to the one-off cheat, not the cheated emission test, although the emission test would have prevented it. I don't know enough about cars to say for sure whether Audi or Porsche would need software to control its emissions, but VW needed the device because it is a diesel. Assumedly, all of those VW's have to be recalled to make them comply with pollution criteria. VOW owns all sorts of high-powered cars, for example Bugatti, so I wouldn't be surprised if this software or something similar, was used to comply with regulations for each car. If they have to recall everything, this is going to be a mess.
I wonder what the theory will be on the class-action suits. From my perspective, the consumers are going to have sort of a difficult time with damages. Recalls will cover the costs to get the cars compliant, and the owner of the car isn't harmed directly by the pollution. You might say they paid a bit more because of the promises VOW made which may be compensable, but how much more? Consumers actually got more car for they bargained for because the car was more powerful than it would have been had it complied with the emissions standards. On the other hand, there's probably a significant drop in residual value because of this.
How comes audi is listed separately to vw even though vw own them ?
Read an article today that VW dealerships are not allowed to sell specific diesel's. Just wondering whether or not there will be a major recall on the 11M that are on the roads plus the fines from respective governments. Also read some good points about possible major civil suits if the company is forced to fix current cars on the road thus reducing their MPG and causing false advertising. All things to consider, but definitely worth looking into. A lot of good brands under their hood.
over 40% exposure on china (and on non top growing product segments) at EBT / EBITDA level with massive margin decrease in products due to potential losses on other main business lines. it was risky before. I do not see the floor being solid. if you are thinking value and some kind of margin of safety, look elsewhere.
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