Arrival

Arrival (NASDAQ: ARVL) can be easily dismissed as another electric vehicle company. However, what makes this growth stock unique is its approach to producing vehicles. Arrival aims to utilise its in-house technologies to produce rapidly scalable microfactories around the world.

With an estimated cost of $50m, these factories can be set up in a matter of months. Not to mention, they are also 24 times smaller than most other factories. This model allows each factory to achieve unprecedented growth, with an annual gross margin of $100m, producing 10,000 vans a year.

Nonetheless, Arrival now trades at a mere $1.44 after losing 95% of its value from its all-time high. This was the result of an overpriced valuation, delays, and share dilution. That being said, I think the stock is now fairly priced given that its market cap ($920m) is now lower than its total assets ($1.5bn).

After numerous delays, start of production for its vans is set to begin this quarter. This leaves me excited as a long-term investor. Provided that all goes according to plan, I think this growth stock could be a huge winner for years to come.

Astra Space

Astra Space (NASDAQ: ASTR) is a company targeting a niche portion of the space launch market. The firm offers to deliver payloads that are less than 300 kg to low earth orbit (LEO) while charging the most affordable fees.

The company has experienced unprecedented growth in its route to getting to space, as it’s the fastest space launch company to reach orbit. Its cheap method of producing rockets is what sets it apart from the competition. Even with a base launch cost of $2.5m, the Alameda-based firm is twice as cheap as its nearest competitor, Rocket Lab. This has allowed Astra to secure a backlog of over 50 launches with the likes of NASA, Spaceflight, Planet, and many others.

Having said that, Astra has also suffered a monumental drop in its share price of 80% this year. The current bear market hasn’t done growth stocks any favour either. Fears of a potential recession have soured investor sentiment and kept share prices low. Nevertheless, if Astra can manage to somehow deliver on its promises of daily launches by 2025, its current share price is going to be a steal.

Stunted growth?

Given the tremendous amount of potential from these growth stocks, are they a buy? Well, it’s important to note that while these companies have the potential to deliver a monumental return on investment, they can also fail.

I’m definitely intrigued by Arrival’s growth prospects. Even so, its cash position leaves me worried. With just $500m of cash, the unicorn has proposed restructuring its business. On the other hand, Astra has gone quiet since its most recent failed TROPICS launch. With no word from management as to what lies next for the company, I think there’s too much risk involved to buy more shares. As such, I’m holding onto both my Arrival and Astra positions for the time being.

The post These 2 growth stocks could be huge winners in the next decade and beyond appeared first on The Motley Fool UK.

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John Choong owns shares of Arrival and Astra Space. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Arrival (NASDAQ: ARVL) is an electric vehicle manufacturer that primarily produces lightweight commercial vehicles such as buses and vans. It plans to price its EVs the same as its petrol and diesel equivalents. With van production coming soon, I will be assessing whether to buy more shares in this EV growth stock for my portfolio.

Electrifying prospects

Arrival has created a standard electric vehicle platform that allows it to save costs. This is because the platform serves as the foundation for multiple vehicle categories such as buses, vans, and cars. This, paired with the EV manufacturer’s groundbreaking microfactory concept, makes its manufacturing process extremely efficient. Its microfactories have interchangeable cells, allowing for production of different vehicles, and up to 10,000 vans a year. Therefore, production can be executed on scale without the need for building massive factories.

Arrival has already secured orders from several companies such as UPS, LeasePlan, and FirstGroup. Its number of letter of intents (LOI) also saw a monumental increase to approximately 134k vehicles in its latest earnings report. This goes to show that the firm is gaining traction from renowned companies globally with plenty of tailwinds.

UPS and downs

Arrival’s biggest customer by far is UPS, which is also an investor in the business itself. The courier giant placed an order for 10,000 vehicles last year, with an option for a further 10,000. Management disclosed that it expects the start of production on its Arrival vans in Q3 this year. UPS also announced on its earnings call that it’s expecting 400 to 600 vans to be delivered by the end of the year. Nonetheless, the next hurdle the EV firm faces is getting its van certified. It expects this to be completed by Q2.

As a shareholder, I will admit that I am slightly worried. The expected production numbers this year are lacklustre to say the least. With the company continuing to burn cash without any revenue, 400 to 600 vans isn’t going to cut it. Although CFO John Wozniak mentioned that Arrival expects to end the year with $150m in cash, he also reiterated the firm’s intention to raise capital in the near future. This is to allow Arrival to scale production to meet its ever-increasing LOI numbers.

The Arrival share price is already sitting at penny stock levels, so any equity funding would be a waste at this price. As such, the company will most likely have to take on debt, which isn’t ideal in a high interest environment.

Delayed arrival

To add to my worries, Arrival is yet to announce the confirmation of its bus certification. This was expected to be completed by Q1. Additionally, the company has also postponed the release of its full financial results twice. These factors don’t bode well for its reputation. As a result, I am worried that Arrival may not even be able to hit its van production targets. Consequently, due to Arrival’s complacency, I will not be looking to buy more shares in this EV growth stock for my portfolio.

The post Could this EV growth stock be about to explode? appeared first on The Motley Fool UK.

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John Choong owns shares of Arrival at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Aston Martin

Traditionally associated with speed, luxury, and James Bond, Aston Martin is a long way from its previous heights. Since IPOing in 2018 at 10,914p, the Aston Martin share price has fallen to around 2,030p. However, in the 12 months, the luxury carmaker has made a comeback, rising 45% from 1,401p to 2,030p.

Though this price doesn’t scream buy for me, the company is definitely heading in the right direction. I am most impressed with its new and improved management team, including chair Lawrence Stroll and new CEO Tobias Moers. These two experienced business operators have improved the company’s outlook significantly, while Stroll seeks to revamp Aston Martin’s reputation.

After leading a £500m takeover of Aston Martin last year, Stroll has rebranded his Formula 1 team under the manufacturer’s name. The strategy is twofold: bring success to the track, which will help transform the fortunes of this ailing brand. 

While all of these are exciting developments, I believe that Aston Martin is still a risky investment. The luxury carmaker has made a string of mistakes over the past few years. It failed to match supply and demand, which led to excess production of its vehicles. It also borrowed too much money as it tried to develop new models.

As a result of these two mistakes, last year, the company was forced to ask shareholders and other creditors for more money to keep the business afloat. It has also had to write off millions of pounds of excess stock. 

I definitely need to see a bit more innovation and electric vehicle investment before I invest. In the meantime, my foolish colleague Rupert has some other dirt-cheap UK stocks as alternatives.

Rolls-Royce

Two weeks ago I was asking myself if I should buy Rolls-Royce shares. Over the last 12 months, the Rolls-Royce share price is down by almost 10% to 111p from 120p. 

Rolls-Royce actually accrued losses of £4bn in 2020. However, this company is a leading aerospace player, and that’s where my bullish attitude comes in. Once lockdown ends and full flight normality returns, a lot of airplanes will need maintenance. Rolls-Royce sold £3.2bn of civil aircraft engines in 2019 and recorded a further £4.9bn in service revenues for the sector. Even in 2020, with Covid-19 severely limiting flights worldwide, service revenues came in at £2.8bn.

There is still a major risk that the airline industry could be irreparably damaged for years to come. With European Covid-19 cases on the rise, there is a real danger of prolonged flight grounding. This will severely affect its bottom line. 

Despite these bear cases, I’m firmly set on adding Rolls-Royce to my shortlist due as I believe its aerospace strength makes it worth the risk. 

The post Should I invest in Rolls-Royce or Aston Martin shares right now? appeared first on The Motley Fool UK.

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The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The founder knows best

The first I’ve got my eye on is AB Dynamics (LSE: ABDP). The £171m market-cap firm is the leading global designer and manufacturer of testing equipment for the industry. It works with each of the top 25 car makers, their suppliers and government bodies that oversee them.

The firm designs equipment that covers everything from testing the mechanical systems of a car to high-tech robot drivers and software that tests how well driver assistance systems function.

Thanks to this ever-expanding range of testing equipment on offer, deepening relationships with long-term customers in Europe, and a concerted sales push into massive new markets like China, AB Dynamic’s revenue is growing rapidly. In the year to August 2017, sales were up 20% to £24.6m while an increased focus on high-tech, high-margin equipment pushed adjusted operating profits up 26.2% to £5.9m.

Over the long term, the company appears well placed to take advantage of increased levels of vehicle ownership in emerging markets, the rising technicality of traditional cars, and the intense competition between car makers and tech firms to design driverless and electric vehicles.

And management is investing to meet rising demand for its services with a brand new £8.4m design and manufacturing facility completed at its headquarters and continued high levels of reinvestment in internal R&D teams. But management isn’t betting the farm as its net cash position of £9.6m provides a very nice rainy day fund for when the auto industry inevitably experiences its next downturn.

AB Dynamic’s shares aren’t cheap at 25 times forward earnings, but I believe its founder-led board has built a sector-beating company that will reward investors for many, many years to come.

When in doubt, call a consultant 

Another auto-related stock on my radar is consultancy Ricardo (LSE: RCDO). It provides services to a wide range of industries, but in 2017 saw 56% of its orders come from its automotive and high performance vehicles segments.

And with these segments attracting a bevy of new contracts from global auto manufacturers, Ricardo is booming. Half-year results released this morning saw revenue growth accelerating by 9% to £182.6m. The group’s order book also grew 24% to £302m, which bodes well for the medium term as it includes plenty of multi-year contracts.

Although Ricardo isn’t as profitable as AB Dynamics, with underlying operating margins for the period coming in at 9.5%, the group does have the benefit of being more diversified with major customers in the rail, energy and defence sectors. This trend should only continue as management uses acquisitions to expand into new sectors related to its core engineering expertise.

With its shares sanely priced at 16 times forward earnings, a well-covered 2% dividend yield, sustainable net debt of only £31.5m and a bulging order book, I think now could be a great time to pick up a long-term winner at an attractive point.

The post Two fast-rising growth stocks I’d buy and hold for 25 years appeared first on The Motley Fool UK.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

WASHINGTON, DC — Fiat Chrysler Automobiles (NYSE: FCAU.US) is preparing for an initial public offering of its Ferrari (NYSE: FRRI.US) subsidy, with pricing likely to occur on Tuesday and the first day of trading on Wednesday. And word on the Street is that Ferrari’s shares — like everything else to do with the brand — won’t come cheap.

$1.8 million for each of Ferrari’s annual sales?

Bloomberg reported last week that the sports-car maker’s valuation could go as high as 11 billion euros ($12.4 billion) — or about $1.8 million for each of the roughly 7,000 cars that Ferrari is expected to sell this year.

FCA plans to sell a 10% stake in Ferrari via a public offering on the New York Stock Exchange. 

But they won’t come cheap. Ferrari earned 389 million euros ($439.2 million) before interest and taxes in 2014 on net revenues of 2.762 billion euros ($3.1 billion).  At 11 billion euros, Ferrari would be valued at over 28 times its 2014 EBIT — a very hefty valuation for a carmaker.

It’s an especially hefty valuation given that Ferrari seems determined to limit its own potential for growth, for good reasons.

Is Ferrari a carmaker, a luxury-goods company, or both?

FCA CEO Sergio Marchionne — who is also the chairman of Ferrari — has said repeatedly that the company shouldn’t be valued like an automaker. Instead, he argues, it should be looked at more like a maker of luxury goods, and assigned a valuation accordingly — 20 times earnings or more, versus the roughly 10-12 times earnings that is typical for a carmaker.

There’s some merit to that, up to a point. Ferrari really is selling luxury goods. Its sales volumes are limited by choice, to preserve the brand’s sense of exclusivity: Demand always exceeds supply. The company caps sales at around 7,000 a year — and while Marchionne has hinted that the cap could be raised to 10,000 at some point, it’s not likely to go much higher.

Ferrari doesn’t really have competitors in the same way that a mass-market automaker does. People who want a Ferrari usually want a Ferrari, no matter what Porsche or other sports-car makers may be offering. It’s hard to imagine a situation (other than a protracted global economic crisis or a scandal that damaged the brand) in which Ferrari would be forced to cut prices.

But at the same time, it’s hard to see where Ferrari will find the growth that stock-investors typically demand.

A richly profitable company, but where will it find growth?

There’s probably a bit of growth to be had over time simply by boosting prices. Raising the sales cap — a little bit at a time — could also provide incremental revenue growth over several years. And Marchionne has talked of finding ways to offer other luxury goods under the Ferrari brand, although it’s unclear how profitable that line of business could be.

In truth, many investors will be attracted — at least at first — by the romance of being able to own a little bit of the greatest car brand of all. (Wall Street professionals are not immune to that romance — in fact, as a group they may be more susceptible to it than most.)

But what’s the case for Ferrari as a long-term investment? We may know more after the company starts its pre-IPO “road show”. But right now, it’s hard to see where the growth comes from — and as much as your humble Fool loves Ferrari’s cars, I’m still sceptical of the company as an investment.

The post Is Ferrari Really Worth $12.4 Billion? appeared first on The Motley Fool UK.

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John Rosevear has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 

In fact, today’s results from Pendragon, which owns the Stratstone and Evans Halshaw brands, show that the company is moving from strength to strength. In the first half of this year, Pendragon delivered an increase in pretax profit of 83% versus the first half of 2014, with it increasing from £33m to £60m. And, on the back of improved demand for aftersales services as well as new and used vehicles, Pendragon now expects to comfortably beat previous guidance for the full year. As such, its shares have risen by over 5% today.

Of course, investors may doubt whether Pendragon can keep its share price momentum going, with its valuation having risen by 25% since the turn of the year. However, it continues to offer excellent value for money, with its shares trading on a price to earnings (P/E) ratio of just 12.4. And, with its bottom line set to rise in the high single-digits in the current year, it appears to justify a further upward rerating which would be great news for investors in the company.

Alongside Pendragon in the automotive sector is Lookers. Its shares also appear to offer excellent value for money, with them trading on a P/E ratio of just 12.2 and, despite having risen by 26% year-to-date, there is considerable upside potential on the cards. Looking ahead, Lookers and Pendragon should benefit from continued low interest rates and improving consumer confidence. And, while monetary policy will tighten over the medium term, it is unlikely to be at a brisk pace, thereby providing the two companies with strong sales potential over the medium term.

Clearly, the outlook for Lookers and Pendragon is rather different than for mining stocks such as Rio Tinto (LSE: RIO) and Glencore (LSE: GLEN). They are in the midst of a hugely challenging period, with declining commodity prices set to cause their earnings to fall by 52% and 12% respectively in the current year. As such, investor sentiment in the two stocks has fallen rapidly, with their share prices having slumped by 17% and 32% since the turn of the year.

However, both Rio Tinto and Glencore offer superb value for money and, looking ahead, are expected to turn their disappointing performance around. For example, Rio Tinto’s renewed focus on generating efficiencies and on increasing supply is set to cause an 11% rise in its bottom line next year, while Glencore’s net profit is set to surge by as much as 50% in 2016. And, with the two companies trading on price to earnings growth (PEG) ratios of 1.3 (Rio Tinto) and 0.2 (Glencore), their shares appear to be hugely appealing for investors who can live with above average volatility.

In fact, while Lookers and Pendragon are very much worth buying at the present time, the mining sector looks massively undervalued and, as such, the likes of Rio Tinto and Glencore appear to be better options for long term investors.

The post Should You Buy Pendragon PLC & Lookers PLC Ahead Of Rio Tinto plc & Glencore PLC? appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.