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UK stocks are well represented in my portfolio and Aston Martin (LSE:AML) is one of them. The luxury car company has seen its share value soar in recent weeks after impressive results saw Aston Martin F1 take third place in Bahrain.
So is this the start of a recovery?
long term performance
Aston Martin’s IPO must be one of the worst in recent years. The value of the shares has fallen 85% since its offer at the end of 2018, despite the recent rally.
At the time of writing this article, it is trading at 300 pence per share. That’s 5% less in 12 months, but it’s just a fraction of what it was three years ago.
So what is behind this fall?
Well, the British sports car maker was worth £4.3bn when its shares traded on the stock market in October 2018 at £19.
Many commentators at the time suggested that this was a considerable overstatement. Shares tumbled on repeated losses as investors lost faith in the company’s ability to operate sustainably.
Is this a change?
It’s important to note that the sizeable gains in stock price over the past week didn’t just stem from the results released on March 1.
Having said that, the results contained several positive aspects.
Despite posting a £495m pre-tax loss, the Gaydon-based company made a narrow £6.6m operating profit in the final three months of the year. Investors had been waiting for some time to see this.
The company reiterated that it will be able to meet its targets by 2024/25, including £2bn in revenue and £500m in adjusted EBITDA. And it will be able to achieve it by selling just 8,000 vehicles, less than the 10,000 expected.
Margins are key to this. Management says the next generation of limited-edition sports and luxury vehicles will have 40% profit margins. Last year’s move to poach ex ferrari boss Amedeo Felisa as CEO, seems to be paying off. Ferrari is revered for the margins of him.
The introduction of the DBX SUV has also been a game changer when it comes to volume and margins.
The Fernando Alonso effect
I’m one of those saddos who watches F1 practice on Fridays. And while Fernando Alonso was proving that Aston could be Red Bull’s main competitor this season, something strange happened. The stock price rose 10%.
And these gains continued when the market opened on Monday. In Sunday’s race, Alonso passed Hamilton’s Mercedes AMG and Sainz’s Ferrari to finish third. His teammate Lance Stroll, son of Aston Martin chief executive Lawrence Stroll, finished sixth, despite a wrist injury.
That’s a vast improvement over last year and, as with street cars, this success rests in part on the poaching experts of its peers. In this case, Aston took several experts from Red Bull.
The F1 team is separate from the stock, but there is a clear overlap. With the team performing well in an increasingly US-centric sport, the automaker should benefit: the US is also among its biggest markets.
Alonso’s podium finish saw the market capitalization rise to £250m.
I will buy more
I intend to buy more shares when I have the funds available. I am aware that debt may weigh on profitability for some time, but Aston is easily a £5bn company if it can hit its 2024/25 targets. Maybe one day it will be a 50 billion euro company like Ferrari.
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