If I had invested £5k into Aston Martin’s IPO, this is how much it would be worth now

If I’d bought Aston Martin shares in the sports car firm’s IPO, I’d be sitting on a big loss today. Should I buy the shares ahead of a recovery?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

£210. That’s what I reckon I’d have today, if I’d bought £5,000 of Aston Martin Lagonda Global Holdings (LSE: AML) shares in the firm’s 2018 IPO.

Of course, my numbers would be better if I’d taken part in this year’s rights issue, when the firm sold £365m of new shares at 30p each. Aston Martin’s share price has since risen to 79p, providing a healthy 160% profit for lucky investors who bought at the bottom.

Aston Martin shares: time to buy?

The group now has new management and has a £500m cash pile to help it survive the pandemic. I’ve avoided AML stock so far, but I’m wondering if it’s time to take a more positive view on this business.

After all, I admire Aston Martin’s cars and the impressive heritage of its brand. I think that ex-Mercedes AMG boss Tobias Moers is a good fit for CEO. I’m also more optimistic about the future of the business. Aston has several new models in the pipeline for the coming years. The firm has also successfully launched its DBX SUV this summer.

Looking ahead, Aston’s expanded technical partnership with Mercedes should also help on the engineering front, providing access to class-leading engines and other tech.

In terms of marketing, chairman and F1 team owner Lawrence Stroll aims to make Aston Martin a bigger luxury brand, like Ferrari. I think he has the passion and connections needed to be successful.

Aston’s sales are expected to rebound strongly in 2021, as the pandemic eases and sales of new models grow. If the global economy stabilises and Asian demand picks up, a strong recovery could be on the cards.

What could possibly go wrong?

I don’t want to be a bore about this, but as a potential buyer of Aston Martin shares, I have one big worry. Debt.

In my view, Aston Martin has far too much debt. Although the firm has raised a lot of cash by selling new shares this year, this money is mostly being held back to keep the company afloat until sales improve.

Aston’s latest trading update showed net debt of £869m at the end of September. That’s not much lower than the £988m reported at the end of 2019, despite the company raising £813m of cash by selling new shares this year.

Make no mistake — Aston Martin is still burning through cash. The company isn’t expected to become profitable until 2022 at the earliest. In the meantime, shareholders face the risk that they’ll be asked to provide yet more cash to stave off bankruptcy.

Aston Martin shares: will I buy?

I’m sure that the Aston Martin brand and business will survive. But I think the outlook for the firm’s shares is far more uncertain.

In my experience, the easiest way to avoid big losses in the stock market is to steer clear of companies with too much debt. That’s doubly true if they’re also losing money, like Aston Martin.

For these reasons, I won’t be adding AML shares to my portfolio. I think there are much better growth opportunities elsewhere.

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.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Stacks of coins
Investing Articles

I asked ChatGPT for the best UK penny stocks to buy and it said this…

This writer turned to an artificial intelligence chatbot to help him find penny stocks worth considering in the stock market…

Read more »

Young woman wearing a headscarf on virtual call using headphones
Investing Articles

With £100 to invest, is it better to buy 26 Tesco shares or 159 shares in Lloyds?

Owning 159 shares in Lloyds Banking Group sounds like a big investment. But as Stephen Wright explains, there’s a lot…

Read more »

Investing Articles

Here’s why I’m buying FTSE 100 shares not S&P 500 stocks

Christopher Ruane has bought S&P 500 shares and may do so again. But for now, he's more focused on this…

Read more »

Investing Articles

Will Tesla stock keep going downhill?

Tesla stock's crashed by over a fifth in a matter of weeks. Our writer explains why he still sees it…

Read more »

Thin line graph
Investing Articles

This US growth stock crashed 99%… then soared 6,398%!

Our writer considers what on earth's driven one large US growth stock down 99% and then up almost 6,400% in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 brilliant pieces of investing wisdom from Warren Buffett

Warren Buffett's made many billions of dollars by investing in well-known blue-chip shares. Here are three pieces of his investing…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With just £5 a week to spare, here’s how someone could start investing – and aim big!

Our writer explains how a stock market beginner could start investing by buying blue-chip shares for less than a pound…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Dividend Shares

2 retirement shares that long-term investors should consider for steady income

Ken Hall takes a look at two big-name retirement shares in the FTSE 100 with market-leading positions and track records…

Read more »