A company with a $15.2 billion market capitalization is surely one that has crossed your radar, or at least you might think so. But how many Vietnamese electric vehicle manufacturers can you name?
Enter VinFast Auto (NASDAQ: VFS), a firm that in just a few months has soared to unimaginable heights and crashed to sinking lows.
Back in August, VinFast was the next hot EV maker, trading at over $82 per share, which represented a near $200 billion valuation. By November, it was trading down around $6 per share, a pace of wealth destruction so rapid, it’s rarely seen.
In the past week, however, a light at the end of the tunnel may have appeared because VFS share price roared back to life, posting at 15.2% gain.
Having run up, crashed lower and now popped again, is now a good time to buy VinFast stock?
VinFast Has Global Ambitions
Although VinFast is firmly a Vietnamese EV manufacturer that receives strong support from the local government via subsidies, tax incentives, and favorable policies, it clearly has its sights set on far-away markets that include Europe and even the United States.
The list of strategic partnerships that the company has forged is evidence of its international ambitions. For example, VinFast has collaborated with Siemens, the German conglomerate, to manufacture electric buses. The value Siemens provides is in the drive-trains technology, used to improve efficiency and performance.
So too has it partnered with LG Chem of South Korea to produce lithium-ion batteries and with Italian firm Pininfarina to design its first two car models, the Lux A2.0 sedan and SUV.
To gain access to the best automotive testing facilities, VinFast acquired the GM Holden’s Lang Lang Proving Ground in Australia. And for engineering prowess as well as to support vehicle development, it worked with Magna Steyr, an Austrian automotive manufacturer.
Collectively, these partnerships signal the firm’s intent to be a serious EV player on the global stage. From design to manufacturing excellence, it’s clear that VinFast is leaving no stone unturned in its ambitions to go international.
As impressive as all those relationships may be, they largely are confined to what’s under the hood, so-to-speak. But VinFast didn’t stop there, it’s also innovated on pricing, a key decision factor for consumers.
By separating the cost of the battery from the vehicle, VinFast is potentially disrupting the legacy approach to charging for electric vehicles in order to make them more accessible to a wider variety of buyers. In a nutshell, the pricing strategy involves leasing the battery.
What has it all culminated in? As it turns out, VinFast has impressed analysts with its financial growth and operational scale. If it can keep the momentum up, Wall Street forecasts it could become a serious contender to larger industry rivals.
So, are they looking through rose-tinted research glasses, or is there merit to their optimism?
Is VinFast Stock Undervalued?
It’s little wonder why VinFast had a huge share price pop recently when you look at its top line financials. In the past two quarters alone, revenue growth year-over-year has been reported up 131.2% and 159.3% respectively.
Costs are still through the roof but operating income losses have reduced from $623 million in Q4 2022 to $472 million in the last quarter, a significant leap in the right direction.
The concern among investors is the accumulation of losses with each sequential quarter has created a downward pressure on cash reserves, which indeed have fallen from $180.9 million to $129.9 million over that same time period.
With such high quarterly losses, relatively thin cash levels, and long-term debt sitting at $1.88 billion, it’s equally understandable why shareholders sold so heavily over the past six months. They were clearly worried about the viability of VinFast as a going concern.
Given a mix of good results recently and balance sheet concerns over the medium-term, what does it all boil down to for the stock? Is VinFast stock undervalued?
According to the consensus of 3 analysts, VinFast is significantly undervalued by 78% with a price target of $10 per share. The range of forecasts is from $7 to $12 per share.
It must be noted that a 5-year discounted cash flow forecast is not quite so upbeat and places intrinsic value at $9 per share, though a comparison based on EBIT multiples would put a price target of just $3 per share on it.
Or in other words, if VinFast can continue its pace of revenue growth and turn top line increases into profitability, the future will be very bright for VFS share price. However, on profitability alone at this time, the outlook is bleak and the fast cash burn ranks top of the concerns list.
Is VinFast a Buy?
VinFast stock has, in a very short time period as a publicly traded vehicle, been highly volatile. Poor gross margins and free cash flow yield have not helped shareholders gain much confidence but the most pressing worry has been around liquidity, and whether sufficient cash reserves exist to fund future operations and growth.
If the naysayers are right, VinFast will need to issue more equity to raise cash and remain solvent, and that strategy will dilute existing shareholders.
On the other hand, a lot of financial and balance sheet problems are solved with fast revenue growth, and that’s precisely what management has reported in the past half year.
VFS share price is clearly higher on expectations that the pace of growth will be sustained, and if so, VinFast stock is a buy. Any slowdown now, though, could be quite ruinous to shareholders and the company itself.
This is a stock that requires careful monitoring from one quarter to the next. Any mis-step would be crushing, so it’s really only an opportunity for those who can tolerate a stomach-churning share price ride.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.