We're still years away from cars being able to fully drive themselves on the road with little human interaction, but there are plenty of companies focusing much of their attention on making that a reality. Mobileye (OTC:MBBYF), Delphi Automotive (NYSE:DLPH), and Baidu (NASDAQ:BIDU) are very different companies, but all of them are competing to get a piece of the $77 billion (by 2035) driverless car market.
But these companies also have another thing in common: Their stock has recently taken a hit. Sometimes that can create a buying opportunity for investors, so let's take a closer look at these companies to figure out whether or not they're bargains.
Is Mobileye a bargain?
Mobileye is a leader in advanced driver assistance systems (ADAS), where automakers use the company's cameras, software, and processors to provide vehicles with semi-autonomous driving features (like automatic braking and lane guidance). The company's technology can already be found in 90% of the world's major automakers.
Mobileye experienced strong growth from 2014 to 2015, increasing non-generally accepted accounting principles net income by 142% year over year and increasing sales by 68%. In the third quarter of 2016, Mobileye increased non-GAAP net income by 32% year over year and sales by just over 16%.
But the company currently trades at a high premium of 96 times its earnings, compared to the average for the technology industry of about 25. And while Mobileye is growing, the company recently ended its partnership with Tesla, which supplied hardware for the electric automaker's semi-autonomous Autopilot system. Consequently, driverless car tech competitor NVIDIA has gained a spot in Tesla's vehicles and now supplies some of the computer technology.
The company's stock price is down 8% over the past 12 months, but Mobileye's high premium and rising competition on the semi-autonomous driving space means Mobileye doesn't look like a bargain right now.
Is Delphi a bargain?
Delphi is a major auto parts supplier that also makes cameras, radar, and software for semi-autonomous car features. The company is quickly expanding its place in the driverless car market and expects to bring its fully autonomous vehicle technology to market by 2022.
Delphi's sales fell by just over 2% from 2014 to 2015, while net income ticked up a bit by 6.5%. In the third quarter of this year, sales were up 10% year over year, and adjusted non-GAAP net income was $409 million, an increase of 12% year over year.
Those mixed results aren't all that impressive, but investors should also consider that Delphi currently trades at just 16 times its earnings. That's below the auto parts industry P/E average of 20. Delphi's stock is down 22% over the past 12 months, and its relatively low P/E ratio makes it a potential bargain. Investors should be cautiously optimistic about Delphi -- considering its global auto parts reach -- but the company still needs to prove it can grow sales and income at a much faster pace.
Is Baidu a bargain?
Baidu is the China-based internet search giant that's also focusing its attention on driverless cars. The company has a growing list of driverless car patents, has already tested its technology on U.S. roads, and plans to launch a self-driving public transportation system in some Chinese cities by 2018.
It's important to remember that like Alphabet, Baidu hasn't exactly explained how it plans to make money from driverless cars (most of its revenue comes from advertising). The company's sales increased by about 35% from 2014 to 2015, to $10 billion, and net income popped 159% year over year. In the company's third quarter 2016, sales decreased by just under 1%, while net income increased by 9.2% to $465 million.
Baidu currently trades at about 12 times its earnings, which is well below the tech sector's industry average. The company's stock is down about 13% over the past 12 months, which is likely a reflection of Baidu's recent report of flat sales.
Baidu obviously isn't a driverless car pure play, but for investors looking to get in on this trend without being overly exposed to it, Baidu appears to be a good bargain. It's still unclear how Baidu will make money from driverless cars, but its dominant position in the space -- particularly in China -- could make it a good bet.
This is just getting started
It's good to remember that the driverless car market is still in its nascent stages. There will likely be more regulations and problems along the way for Baidu, Delphi, and Mobileye, which may cause some extra volatility as this new market develops. Keep in mind that the usual standards of looking for well-managed companies with great long-term prospects still apply.