Tesla stock (NASDAQ: TSLA) is up by over 170% since early 2018, driven by the launch of the Model 3 sedan and growing traction in China. In comparison, the stock price for Federal Signal (NYSE: FSS), a producer of specialized vehicles and equipment for government and commercial customers, has seen its stock rally by just about 35% over the same period. Sure, Teslaâ€™s revenue growth has been stronger, as sales almost doubled between 2017 and 2019, compared to Federal Signal which saw revenue growth of 35%. However, Federal Signal still looks like a good value in comparison, as it remains profitable, posting net margins of about 9% in 2019, compared to loss-making Tesla, while its valuation multiples are also much more attractive (1.5x trailing revenues, versus 6x for Tesla). Our dashboard Is Federal Signal Stock A Better Bet Compared To Tesla? has the underlying numbers.
How Do The Core Businesses For Tesla And Federal Signal Compare?
Letâ€™s look at the core business prospects of both companies a little more closely. Tesla primarily sells electric vehicles including the Model S premium sedan, the Model X premium SUV, and the Model 3 sedan, and the Model Y compact SUV. The company also offers renewable energy solutions such as batteries and solar panels. Tesla stock has soared by 90% this year, despite the broader market sell-off, driven by growth in China and increasing confidence that Tesla will be able to maintain an edge in the EV space, as the current recession is likely to hurt mainstream automakers investments in the area.
Federal Signal offers specialized products and integrated solutions for municipal, governmental, industrial, and commercial customers. Key products include sewer cleaners, industrial vacuum loaders, street sweepers, road-marking and line-removal equipment, water blasting equipment, and dump truck bodies. Although the stock is down by about 10% year-to-date, the company has been consistently profitable, posting positive cash flows. Its leverage is also quite manageable, with total debt standing at just $220 million.
Overall, Federal Signal could be the better bet at current levels. There is little reason for people to buy cars right now and discretionary spending is also likely to drop significantly as the economy slips into a deep recession, potentially hurting demand for Teslaâ€™s pricey vehicles. Tesla has put its 2020 guidance on hold, while recently cutting prices on its vehicles by as much as $5,000 – a sign that it may be having trouble with demand. Federal Signal, on the other hand, has significant exposure to government-related markets and it could more easily weather the downturn, as government spending potentially holds up better compared to consumer spending.
Curious why Tesla has outperformed the broader automotive sector by such a broad margin? View our analysis on Why Is Tesla Up 90% YTD, While Mainstream Autos Are Down 40%? for more details.