It is tempting as investors to look for bargains, but that can sometimes lead to investing in bad companies. Cheap share prices can keeping going down. Sometimes all the way to zero. That’s why it’s a game that you need to be confident of winning.
There’s nothing in the recent performances of either Aston Martin Lagonda (LSE: AML) or Marks & Spencer (LSE: MKS) to reassure me that a turnaround in the fortunes of their battered share prices is on the cards.
Change at Aston Martin but troubles remain
Looking first at Aston Martin, the main hope is that the backing of billionaire executive chair Lawrence Stroll will be enough to help the company improve. That along with a new CEO from Mercedes AMG could prove a boost.
There’s also the production of its new DBX SUV, which Aston Martin claims has strong forward sales orders.
Taking these in order I’m not sure they’ll be enough to help the shares reverse their current path downwards. Stoll made his money in fashion investing and though he might be a petrolhead he’s not putting a large part of his fortune on the line to rescue Aston Martin. I think buying the shares simply to follow where a billionaire has put a small part of their money is foolish – in a bad way.
The new CEO will have a lot on his plate and although he’ll know Aston Martin well it remains to be seen if he’ll have all the answers to its many problems.
The last hope is that another company – perhaps Daimler – will bid for the company. But again, to invest in the hope of a bid doesn’t seem sensible. That’s just gambling.
Overall, the increasing debt, the placing of news shares, the high interest Aston Martin has to pay to secure new financing all combine to make me less than optimistic about an improvement any time soon in the share price.
Too big and too slow
Marks & Spencer is another upmarket brand that’s struggling. Struggles with clothing and reaching a new younger audience seem to be behind its troubles and explain why the share price is falling.
M&S is still quite quaint. It’s online offering – even following a tie up with Ocado that cost around £750m – seems rather lacking. The group has been slow to adapt when competitors have seen change coming and pivoted. M&S is on the back foot.
Covid-19 hasn’t heped. M&S lost £52m in March alone because of the coronavirus. Even fewer customers in stores and a lack of online presence will likely have hit M&S harder than rivals.
The executives talk of strategies, but delivery has continued to be woeful. That’s why I don’t think the shares are likely to improve any time soon.
No matter how cheap the shares get, there’s always room for the share price to go lower. On that basis, I find neither Aston Martin nor M&S an exciting long-term recovery investment. I suspect both shares are value traps.
