Why I’d buy this FTSE 100 growth stock over Aston Martin in a heartbeat

Luxury car maker Aston Martin Lagonda Global Holdings plc (LON:AML) has had a difficult start to life in the market. Paul Summers thinks the shares have further to fall.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Since arriving on the market at the beginning of October, shares in luxury sports car maker Aston Martin (LSE:AML) have spent a lot of time in reverse gear. That’s continued today, despite the publication of a solid set of third quarter numbers.  

Revenue at the £3.7bn-cap jumped 81% to a record £282m over the three months to the end of September (compared to the same quarter in 2017), thanks to “strong demand” for its new models and excellent growth in the US (up 185%) and Asia Pacific (up 133%). Sales in the UK also rose 66%, making up for “some softness” in Europe, the Middle East and Africa.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 93% to £54m as the company shipped 1,776 cars to customers over the period. Reported pre-tax profit for Q3 came in at £3.1m.

In other news, progress continues to be made on the construction of the company’s new plant at St Athan in Wales, due to be operationally ready in the first half of 2019 and set to produce the “breakthrough” DBX model — Aston Martin’s first SUV. 

Reflecting on its performance for the first time as a listed company, CEO Dr Andy Palmer said that today’s numbers gave management confidence that full-year targets would be met “with sales at the top end of the range” (6,200-6,400 units). Separately, Aston reconfirmed that it expected a 23% rise in adjusted EBITDA margin for the full year.

The market, however, seemed distinctly unimpressed, with shares falling 6% in the first hour of trading. Clearly, some of this will stem from the ongoing confusion surrounding Brexit and the potential for this to impact on production and sales at the business. Nevertheless, I still think Aston’s market-cap — at £3.7bn — is still far higher than it should be (despite already being 20% lower than at the time of its IPO), based on the size of its earnings.

At a time when it feels prudent to favour value over growth (or at least growth at a stratospheric price), I still wouldn’t go anywhere near the stock.

Affordable luxury

If you’re looking for a company known for making luxury goods but whose stock price looks infinitely more appealing, I think £7.3bn-cap Burberry (LSE: BRBY) hits the spot. 

As summarised by my Foolish colleague Roland Head last week, the FTSE 100 giant has actually been performing fairly well in what remains a tough retail environment. Interim results for the 26 weeks to 29 September revealed a 4% rise in revenue (excluding the now-discontinued Beauty wholesale division) at constant currency. At £178m, adjusted operating profit was 4% lower, but it’s important to recognise that this actually represented growth of 8% once foreign exchange headwinds were taken into account. That really isn’t too bad at all. 

With the luxury fashion house confirming that its outlook for the full year hadn’t changed, I’m beginning to think that the 25% fall in value since reaching all-time highs back in September presents prospective investors with a great opportunity to buy in. True, the shares still aren’t cheap, at 22 times earnings, but, as Warren Buffett advises, it’s often better to buy a wonderful company at a fair price rather than the other way around. Taking into account the consistently high returns achieved on the money it invests and its strong balance sheet, I remain bullish on Burberry’s stock for the long term.    

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

Are last month’s 2 biggest FTSE 100 losers the best shares to buy today?

Sometimes the best shares to buy are those that have taken the biggest beatings and are cheaper as a result.…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

Warren Buffett believes this one investing rule is key to his success

In this article, I'll use my position in a UK-listed ETF to help illustrate a well-known 'investing trick' that's favoured…

Read more »

Investing Articles

How many National Grid shares must I buy for a £100 monthly second income?

I think National Grid could be one of the safest options for investors seeking a dividend income. And today its…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

NIO stock is down 90%. Will it recover?

NIO stock has fallen significantly from its 2021 all-time high. But could now be a chance for this Fool to…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

These 2 UK shares could help me reach £1,000,000 in my Stocks and Shares ISA

A FTSE 100 compounding machine and a FTSE 250 value stock are the UK shares Stephen Wright thinks could help…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

If I’d invested £1,000 in Lloyds shares at the start of the year, here’s what I’d have now

The stock market is unmoved, but Stephen Wright thinks last year’s record profits might give Lloyds shares a long-term boost.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

I’ll snap up shares in this growth stock in March if others don’t get there first

This Fool says shares in this growth stock are stable, full of profit, and might be undervalued. But there are…

Read more »

Rainbow foil balloon of the number two on pink background
Investing Articles

My 2 top energy investment trust picks for a passive income

I'm aiming to buy more of these investment trusts for a passive income and the reasonably stable energy sector returns…

Read more »