Is REV Group, Inc. (REVG) a Compelling Growth Stock with Strong Profit Margins Ahead?

We recently published a list of 11 Hot EV Stocks to Buy Now. In this article, we are going to take a look at where REV Group, Inc. (NYSE:REVG) stands against the other hot EV stocks to buy now.

Just like any new technology, there is a lot of skepticism about the electric vehicle (EV) industry as well. Some believe that the technology is not viable while others are worried if the infrastructure will be enough to meet the charging demand and so on.

However, the electrification of vehicles is inevitable in the future. While there has been a slowdown in EVs in the US and Europe, China’s dominance and growth in the industry are a testament to the fact that the technology will take over internal combustion engines relatively soon.

We discussed the dominance of the Chinese EV industry in our article, 11 Small Cap EV Stocks to Invest In. Here is an excerpt from the article:

“While the growth in the US and Europe is slowing down, China is picking up a significant pace and dominating the EV landscape. According to a World Economic Forum report, Chinese EVs are much cheaper than their Western counterparts, with an average price of $34,400, compared to $55,242 in the U.S. The price gap is driven by lower labor costs, favorable government subsidies, and more affordable battery sourcing.

Chinese automakers now produce more than half of the world’s EVs and are using their cost advantages to potentially dominate the global market. As Chinese brands gain scale and expertise, their competitive pricing could allow them to challenge Western automakers.”

A lot of the EV slowdown in the West is attributed to the removal of subsidies, higher prices compared to gas-powered cars, and limited charging infrastructure. Nevertheless, some governments are now considering reinstating subsidies, and automakers are working to introduce more affordable EV models to boost demand and recover market share.

Burning Question: Is EV and Battery Manufacturing Worse for Climate?

While it is clear that EVs are better for the environment, many people have raised questions about the impacts of EVs and battery production on the environment. According to a report posted on the MIT Climate portal in 2022, Sergey Paltsev from MIT’s Joint Program on the Science and Policy of Global Change explained that despite the manufacturing emissions, EVs have a significantly lower environmental impact compared to gasoline-powered cars.

The higher emissions from manufacturing EVs, especially due to the production of their lithium-ion batteries, are offset by the cleaner operation of EVs over their lifetime. Charging emissions vary depending on the energy source.

In regions using clean energy like hydropower, EVs have a very low carbon footprint, while in areas reliant on coal, the emissions are higher. However, even in the worst scenarios, EVs generally outperform gasoline vehicles in terms of emissions.

Moreover, studies from MIT and the U.S. Department of Energy show that EVs consistently produce less carbon dioxide per mile driven than hybrids or gas-powered cars. For example, the average EV emits 25% less CO2 than hybrids when using the U.S. grid’s energy mix, and this gap widens in regions with cleaner energy.

Our Methodology

For this article, we scoured stock screeners and ETFs to identify nearly 50 stocks that were involved in the EV industry in a significant capacity. Next, we narrowed our list to 11 stocks that had double-digit year-to-date share price growth as of September 30 and were most widely held by institutional investors. It is important to note that the share price returns were calculated while the market was open which could result in fluctuations compared to the provided data. Finally, we listed the 11 hot EV stocks to buy in ascending order of their hedge fund sentiment, which was taken from Insider Monkey’s database of over 900 elite hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A technician installing a replacement part on a specialty vehicle, surrounded by a team of professionals.

REV Group, Inc. (NYSE:REVG)

Year-to-date Share Price Returns: 54.42%

Number of Hedge Fund Holders: 22

REV Group, Inc. (NYSE:REVG) is a Wisconsin-based company that manufactures a diverse range of vehicles, including ambulances, buses, firefighting equipment, recreational vehicles, and other specialty vehicles. The company also provides aftermarket services for specialty vehicles.

REV (NYSE:REVG) is revolutionizing the EV market for specialty vehicles. Some of its EV offerings include all-electric fire trucks, ambulances, and transit buses, along with hydrogen fuel cell buses and terminal trucks.

On September 4, REV (NYSE:REVG) reported its fiscal third-quarter results, showing net sales of $579.4 million, down from $680 million in the same quarter last year. Despite this decline, net income rose to $18 million compared to $14.9 million in the prior year.

The company also updated its fiscal 2024 outlook, according to which, it expects net sales between $2.35 billion and $2.45 billion, net income of $226 million to $240 million, and Adjusted EBITDA of $155 million to $165 million.

After the earnings, Baird commented that while the company performed better than expected in terms of operations and slightly raised its EBITDA guidance, it was not sufficient to meet the higher expectations set by investors.

However, the firm is optimistic about significant growth in profit margins, EPS, and free cash flow through the fiscal year 2026. Baird has an Outperform rating on the stock with a price target of $32.

According to our database, 22 hedge funds had stakes worth $238.333 million in REV (NYSE:REVG) in the second quarter. This brings the company to 6th position on our list of hot EV stocks to buy.

Overall REVG ranks 6th on our list of hot EV stocks to buy now. While we acknowledge the potential of General REVG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than REVG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.