Japanese automaker Honda Motor has seen its stock rise by just 1% this year, lagging behind its rival Toyota, which has seen a 7% increase in its stock value. Honda had a successful fiscal year 2024, with a 20% increase in revenue and a 70% growth in net profits, driven by a weak yen and strong automobile sales after the easing of Covid-19 restrictions. However, there are concerns about the company’s future growth, with projections for a slower increase in automotive sales and a potential decline in overall revenue for fiscal year 2025 due to a stronger yen.
Investors are also worried about Honda’s position in the electric vehicle market, as the company has been slow to adopt EV technology. Despite doubling down on its EV strategy with investments in a Canadian EV hub and transforming its Ohio operations, these efforts come at a time when the broader EV market is cooling off, with other automakers delaying their investments in EVs. Additionally, competition from local producers in markets like China could pose a threat to Honda’s EV ambitions.
Honda’s stock price has remained relatively flat over the past three years, while other companies in the auto industry, such as Amphenol Corporation, have seen significant growth due to the electrification of the industry. The Trefis High Quality Portfolio, which includes Amphenol Corporation, has consistently outperformed the S&P 500, raising questions about Honda’s ability to compete in the current market environment. With the uncertain macroeconomic landscape and elevated interest rates, Honda may face challenges in outperforming the market in the coming months.
Despite these challenges, Honda’s valuation is considered reasonable, trading at about 7.5x projected FY’25 earnings. The company’s plans to boost share buybacks and potential gains in the hybrid automobile space are seen as positives for the stock. Trefis values Honda stock at around $38 per share, offering a potential 20% upside from the current market price. For more details on Honda’s valuation and revenue streams, investors can refer to Trefis’ analysis of the company.
Overall, Honda’s performance in the stock market has been relatively lackluster compared to its competitors, with concerns about its future growth prospects and its position in the EV market dampening investor sentiment. Despite these challenges, the company’s reasonable valuation and strategic initiatives give hope for potential gains in the future. As the auto industry continues to evolve, Honda will need to adapt and innovate in order to stay competitive and attract investors in the long term.
