Image Source: Unsplash

As part of our ongoing series here at The Acquirer’s Multiple, each week we focus on one of the stocks from our Stock Screeners, and why it’s possibly a deeply undervalued gem.

The Stock this week is:

Stellantis NV (STLA)

Stellantis was created out of the merger of US-based Fiat Chrysler Automobiles, or FCA, and French-based Peugeot, or PSA, in January 2021, resulting in the fourth-largest automotive original equipment manufacturer, or OEM, by vehicle sales. In 2023 it sold 6.4 million vehicles, 44% and 30% in Europe and North America, respectively. North America is the most profitable region, contributing 53% of operating income. Its brands include Fiat, Jeep, Chrysler, Ram, Peugeot, Citroen, Opel, Alfa Romeo, and Maserati.

A quick look at the share price history (below) over the past twelve months shows that the price is down 45.37%.

Source: Google Finance

One of the metrics we use in our screens is IV/P (Intrinsic Value to Price). Let us simplify what it means:

IV/P (Intrinsic Value to Price) tells you if a stock is a good deal or not based on how much value you’re getting for the price you pay. Here’s how it works:

1. The Calculation: It adds up the stock’s ability to make money (Earning Power), grow (Incremental Growth), and pay back investors (Shareholder Yield). This gives you an idea of what the stock is really worth, called its Implied Value.
2. The Meaning of IV/P:
   • If IV/P is greater than 1, it means you’re getting more value than you’re paying for. For example, for every $1 you invest, you’re getting more than $1 of value. That’s a good deal!
   • If IV/P is less than 1, it means you’re getting less value than you’re paying for. For example, for every $1 you invest, you’re getting less than $1 of value. That might not be a great deal.
3. What It’s Used For:
   • It’s a quick way to spot undervalued stocks (good deals).
   • If IV/P is very low, like 0.6 (you’re only getting 60 cents of value for $1), it’s likely overpriced.
4. Important Note: This is just an estimate. Other factors, like market trends or company issues, can affect how accurate this is.

So, IV/P helps investors find stocks that are “cheap” based on how much value they give back. Higher is usually better!

We currently have an IV/P of 4.30 for Stellantis NV, which means the stock’s Implied Value is calculated to be 4.30 times greater than its current price. In simpler terms:

• For every $1 you invest, you’re potentially getting $4.30 of value.
• This is an great ratio, which might suggest the stock is deeply undervalued or that there’s some mispricing or unusual calculation in the data.

Possible Reasons for This Undervaluation:

• Profit Warnings and Inventory Issues: Stellantis has issued significant profit warnings, revising its cash flow forecast from positive to a potential outflow of up to €10 billion. This downturn is attributed to inventory backlogs in the U.S. and increased competition, particularly from Chinese manufacturers.
• Leadership Changes: The unexpected resignation of CEO Carlos Tavares has led to a 6.3% drop in Stellantis’ stock price, reaching its lowest level in two years. This leadership vacuum comes at a critical time as the company faces financial challenges and strategic uncertainties.
• Market Share Decline: Stellantis has experienced a sharp decline in market share, dropping from 13% to 8%, due to strategic errors such as increasing prices and cutting less profitable models. This has raised concerns about the company’s ability to rebuild its market position.
• Cost-Cutting Strategies: CEO Carlos Tavares implemented aggressive cost-cutting measures, including significant job cuts and relocating engineering roles to lower-cost regions. While intended to maintain financial goals, these strategies have led to reduced market share and doubts about their long-term sustainability.
• Dealer Relations and Inventory Levels: High inventory levels have caused friction with U.S. dealers, leading to public criticism of Stellantis’ strategies. The company plans to reduce U.S. inventory to no more than 330,000 units by the end of the year, indicating challenges in demand forecasting and supply chain management.
• Competitive Pressures and EV Transition: Stellantis faces increased competition in the electric vehicle market, particularly from Chinese manufacturers. The company’s efforts to transition to EVs are under scrutiny, with concerns about its ability to keep pace with industry leaders.

More By This Author:

Microsoft Corp (MSFT) DCF Valuation: Is The Stock Undervalued?
10 Worst Performing Large-Caps Last 12 Months
CHTR: The One Stock That Superinvestors Are Dumping: Is It Time To Sell?