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Why $FCAU may be undervalued

EV/EBIDTA is a great metric which gives us a theoretical takeover value of the company. The biggest plus point of this metric is that it includes the debt component of the Stock. This is also very relevant now that a lot of companies are issuing debt for acquisitions or stock buy backs. While looking for a company which had low EV/EBIDTA as well as a low P/E ratio, we came across FCAU.

Expert Opinion – Stockal Confidence Meter is currently at 27%. A lot of buy side analysts are not happy about the stock due to relatively lower sales in the U.S. over the last few years.  Also, with the “Dieselgate” scandal,  Fiat is under a formal investigation by the French prosecutors. However, if we look at the fundamentals, FCAU has a bullish potential, with low EV/EBIDTA of 1.74 and P/E of 7.28. Recently, Vetr downgraded FCAU to “Buy” from “Strong Buy”. FCAU also has a Gross Margin score of 6.0, on a scale of 1 to 100, 1 being the most positive to 100 being the most negative. This is derived from the Gross Margin stability and growth over the previous eight years. Also, despite the reduction in sales in U.S, Jeep chief Mike Manley expects that the brand would pass the previous year’s sales total.

Chatter – There is much chatter about the FCAU, and Investors have positive sentiments about the stock. Stockal Sentiment Index is 50% higher than yesterday. Moody’s improved its outlook to positive by FCAU a “Ba3” rating. Fiat Chrysler announced its amendments to the syndicated revolving credit facility with a group of 27 banks which was signed in 2015. The amendment provides for an increase in the banks’ commitment from 5Billion Euros to 6.25 Billion Euros. This will be available for general corporate purposes and the working capital needs of the Company. This shows that the company has strong financial support from key international banks.

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