Ambitious EV Shift & Low Valuation Suggest Major Upside for Stellantis Stock

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Stellantis NV Aggressively Expanding its EV Business

The world is focused on moving toward carbon neutrality, and one of the best ways to cut pollutants is to get drivers to shift to electric vehicles (EVs). If you think about how many gas-powered vehicles are on the road, replacing them with EVs makes sense.

China and Europe are currently leading the world in EV adoption, but the U.S. has plans to catch up. To what degree government incentives will help power the demand for EVs is unclear, but the pure-play EV companies and legacy automakers have been spending tens of billions of dollars on expanding their operations in the EV space.

Many of you probably know what the main domestic EV stocks are, but do you have Stellantis NV (NYSE:STLA) on your list?

The company formed after a $52.0-billion merger between Peugeot S.A. and Fiat Chrysler Automobiles NV in 2021, becoming the world’s fourth-largest automaker. (Source: “Fiat Chrysler, Peugeot Get Green Light for $52 Billion Carmaker,” Reuters, January 4, 2021.)

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While Stellantis NV is still driven by sales of its internal combustion vehicles, the company has extremely ambitious plans to increase its EV sales over the next decade in Europe and the U.S.

But like with other EV companies, the global supply chain disruption and rising raw material costs in the past few years have hurt. The situation, however, will improve and production will rise, which will provide tailwinds for EV stocks such as STLA stock.

Attractive Valuation and Profitability

Stellantis NV is a major automaker that earned revenues of $149.4 billion in 2021 following the merger of Peugeot and Fiat Chrysler. (Source: “Stellantis N.V.” MarketWatch, last accessed June 9, 2022.)

Based on its current market cap of $23.4 billion, Stellantis trades at an attractive multiple of 0.28 times its 2021 revenues, versus a multiple of 0.40 for General Motors Company (NYSE:GM) and a multiple of 0.38 for Ford Motor Company (NYSE:F).

In terms of generally accepted accounting principles (GAAP) profitability, Stellantis NV delivered a whopping $4.51 per diluted share in 2021. That represented a low trailing multiple of 3.3 times the company’s 2021 EPS.

If that wasn’t enough, Stellantis NV has churned out positive free cash flow and pays out an annual dividend of $1.10 per share, for a yield of 7.4%.

These are attractive fundamentals, in my view, and I think Stellantis stock is undervalued by the market.

STLA Stock’s Price Way Too Low

A look at the below chart shows Stellantis stock’s price deterioration following numerous failed attempts to break out at $22.00.

The surfacing of a death cross, a bearish crossover pattern that arises when the 50-day moving average breaks below the 200-day moving average, isn’t what you want to see from Stellantis NV, but things can reverse.

Chart courtesy of StockCharts.com

As far as upside goes, STLA stock just recovered its 50-day moving average of $14.27 and could target its 200-day moving average of $16.77. Above that is a key resistance level at $22.00. Stellantis stock’s support level is $13.00.

Analyst Take

It might be a good idea for every investment portfolio to have some exposure to EV stocks. Since shares of pure-play EV companies are expensive, I suggest looking at shares of legacy automakers, which tend to be priced significantly lower.

That’s the situation with Stellantis NV. STLA stock is currently cheap, and if the company can deliver on its EV strategy, I would expect a significant rally in its share price.