Why is Renault So Cheap?

VIDEO: French carmaker's shares are significantly undervalued, according to Morningstar analysts

James Gard 9 August, 2021 | 9:58AM
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James Gard: Each week we look at one stock that is cheap or expensive and why. This week is the turn of European carmaker Renault. Renault traces its roots back to 19th century France. But these days it's part of a global alliance of car makers. That includes Nissan, and Mitsubishi. It also owns a Formula One team. Renault makes popular cars like the Renault Clio and the Kadjar. It also owns Dacia, which makes the Dacia Duster and the Logan.

Why are Renault shares so undervalued? The wider European car industry has been suffering from overcapacity for years, while COVID put the brakes on demand for new cars across the continent. The rapid shift to electric vehicles is also increasing costs for manufacturers. But Renault has got back on track in the last six months quickly returning to profit and selling 1.4 million vehicles, a rise of nearly 20% on the first six months of 2020.

It's expanding in emerging markets too through a China joint venture, and has production facilities in Brazil, Russia, India and Turkey. Morningstar analysts say the shares appeal to patient long-term investors who are willing to back a company's long-term turnaround story. Renault shares have a fair value of 86 euros per share but are currently trading around 36 euros per share.

For Morningstar I'm James Gard.

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James Gard

James Gard  is senior editor for Morningstar.co.uk

 

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