A 2025 study from the Hungarian University of Agriculture and Life Sciences, which was published in the Journal of Risk and Financial Management, actually tested which metrics are important for auto stocks and which are not. This is something that most retail investors never bother to do. Four potential inputs—ROA, ROE, EPS, and profit margin—were fed into an adaptive neuro-fuzzy model by the researchers. After that, they eliminated each variable one at a time to determine which omissions severely damaged the model. It turned out that ROA and ROE were load-bearing walls. Prediction accuracy plummeted when either was removed.
What stands out is what the experts discarded. The three metrics that make up every Investopedia article on value investing—price-to-earnings, debt-to-equity, and current ratio—were eliminated during the expert interview stage. The ratios are too noisy in the auto industry, not because they are generally useless. Cyclical demand, macro shocks, sentiment swings on EV policy, sudden tariff news — all of it warps short-term valuation multiples in ways that make P/E almost unreadable. Anyone who has attempted to evaluate Ford or Boeing using a P/E ratio in the last two years will understand how it feels.
If EPS alone isn’t sufficient, what can accurately forecast an automobile stock’s next move? The Hungarian study makes a strong case for ROE, which is corroborated by previous research from Mohamed et al. in 2021 across 58 firms. It measures whether an automaker is actually making more money per dollar of shareholder capital or if buybacks and one-time tariff refunds are merely used to inflate headline earnings. Ford’s most recent quarter serves as an example; the underlying ROE story softens significantly when a one-time $1.30 billion IEEPA benefit is eliminated. Unlike EPS, which occasionally lies, ROE doesn’t.
The second pillar—possibly the most underappreciated—is ROA. Massive fixed assets, such as paint shops, assembly plants, and tooling, power the auto industry. The question that matters throughout cycles is whether Toyota, Ford, or Stellantis are genuinely making money on those steel and concrete investments. There’s a sense, watching how the Hungarian researchers’ model fell apart without ROA, that this metric quietly tracks the operational discipline traditional analysts gloss over.
Profit margin rounds out the third leg, and here the picture gets more interesting. Mohamed and colleagues found PM was the least impactful of the four, yet the Hungarian study still kept it in the model because removing it degraded forecast stability. It’s possible that profit margin works less as a predictor on its own and more as a check — a way to catch when ROE or ROA improvements are real versus engineered. A widening margin alongside rising ROE tells you the company is genuinely earning better. A flat margin with rising ROE often just means leverage going up.
The cultural backdrop matters too. Tesla’s run from under $100 billion to over a trillion didn’t happen because EPS surprised. It happened because investors started believing the company could sustain unusually high returns on the capital it was deploying. Ford and Volkswagen each saw their stocks pop on electrification announcements long before the earnings caught up. Markets, for all their noise, eventually do reward returns on capital. They just take longer to find them than the headlines suggest.
It’s difficult to ignore the fact that ROE, ROA, and profit margin are not unique metrics. Every year, they sit on the report. The Hungarian study subtly shows that the trick is to take them seriously while ignoring the metrics that TV anchors and journalists constantly bring up. It’s still unclear if retail investors truly do that.
