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Aston Martin (LSE: AML) The shares may still be 92% lower than their IPO price, but they have been on fire this year. In fact, they have nearly doubled as investors have warmed to the idea of a turnaround in the luxury carmaker’s fortunes.
Today (September 29), they are up 13% to 296p.
After this latest rise, do the shares of the FTSE 250 Is it worth buying a company today? Let’s discuss.
What happened
The shares rose today after it was announced that Lawrence Stroll’s Yew Tree Consortium had bought an additional 26 million Aston Martin shares. This increased his majority stake by 3.27%, putting his ownership at 26.23%.
Paseo said: “This increased investment demonstrates our continued, long-term commitment to the company, our conviction for the future and the shareholder value the company will deliver.“.
Stroll became chief executive in April 2020 after leading the consortium’s initial investment in the struggling British carmaker. But there is a complex global ownership network, with Saudi Arabia’s Public Investment Fund (PIF), Mercedes Benzand the Chinese automobile giant Geeley There is also a lot at stake.
Brand power
While the Aston Martin brand is undoubtedly iconic, with its cars still capable of turning heads on the street, the company’s ability to turn a profit has long been an issue.
But Lawrence Stroll knows how to successfully market luxury brands. The Canadian earned billions with brands like Polo ralph laurenTommy Hilfiger and Michael Kors around the world.
And although his lifelong passion is high-powered luxury cars, he didn’t buy the loss-making Aston Martin as a pet project. He intends to turn the company into an ultra-luxury brand that generates enormous profits as ferrari.
How is this ambition progressing?
A long road ahead
Well, in its latest first-half report, the company’s revenue rose 25% year-on-year to £677m. It sold almost 3,000 vehicles at a base average selling price (ASP) of £184,000, up 12% from £164,000 in the first half of 2022. Ahead of upcoming launches, its current range of GT/sports cars has sold out by 2023.
This is very encouraging as it suggests that recent price increases are not affecting demand. And it reminds us that Aston Martin’s wealthy customers certainly aren’t feeling the pressure.
Still, the company is making a loss, with a provisional pre-tax loss of £142m. This figure is significantly lower than the previous year, but analysts do not expect the company to post a profit for the next few years.
Meanwhile, with a cash balance of £400m and a further £60m of credit available, I fear further shareholder dilution is on the cards.
Additionally, the company will move into electric vehicles (EV) sometime in the next decade. Yes, you have partners to help here, including an electric vehicle specialist. Lucid Groupbut this will require massive investment.
Unlike Ferrari, it will not embark on this transition from a position of incredible financial strength.
Which brings me to the company’s net debt. This figure has been reduced recently, but is still significant: £846 million at the end of June.
My sight
Weighing everything up, my opinion is that Aston Martin stock still seems too risky to invest in today. Uncertainty remains around sustainable profits and the path to electrification.
I believe that any investment would be highly speculative and its size should reflect this.
