The stock market is supposed to be an efficient machine that takes all available information and immediately reflects it in share prices. The reaction to recent earnings from auto suppliers shows it doesn’t always work that way.
Some of the stocks’ moves are just plain odd, illustrating an important lesson. It is never good to assume one group of investors knows what people focusing on a different industry have already learned.
The latest example came on Thursday, when the auto parts supplier
Aptiv
(APTV) reported an operating profit of $560 million from sales of $5.1 billion, while Wall Street was looking for about $570 million and $5.1 billion respectively. Everything was essentially in line with expectations, especially considering that Aptiv lost some sales as a result of the United Auto Workers’ strike against the Detroit Three car manufacturers, which began on Sept. 15.
The stock was down 14% in midday trading, even though management stuck with its financial forecasts for 2023. The
S&P 500
and
Dow Jones Industrial Average
had risen about 1.5% and 1.2%, respectively.
Worry about demand for electric vehicles appears to be behind the loss. Aptiv is supposed to grow faster than the overall auto market because it sells more parts on electric vehicles than on traditional cars, so slowing growth in EV sales is bad news.
What is interesting is that there is no reason for anyone to be surprised by the possibility that EV growth might slow down. Third-quarter earnings from
Tesla
(TSLA), disclosed on Oct. 18, were disappointing, and CEO Elon Musk said high interest rates are hurting demand.
Ford Motor
(F),
General Motors
(GM),
Volkswagen
(VOW.Germany), and
Mercedes-Benz
(MBG.Germany) have all signaled concern over EV demand in recent weeks.
ON Semiconductor
(ON) stock has fallen almost 20% since the company provided weak financial guidance on Monday.
EV growth was the issue there as well.
The point is that Aptiv investors aren’t necessarily the same people who follow ON Semi or Tesla. Those groups don’t always pay attention to each other. Investors can take advantage of that—avoiding nasty surprises and getting ahead of the pack—by tuning into a wide range of company reports.
Despite the Aptiv drop, not much has changed for auto investors on Thursday. Through midday trading, the stock was down about 17% over the past 12 months.
Shares trade for less than 12 times estimated 2024 earnings. That is high for an auto-parts supplier, but the S&P 500 trades for closer to 17 times.
Write to Al Root at [email protected]
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