Both Aston Martin (LSE: AML) and Rolls-Royce (LSE: RR) are stalwarts of British engineering. However, both their share prices are telling me very different stories. As these two stocks power in different directions, I’m asking which one I should invest in right now.
Traditionally associated with speed, luxury, and James Bond, Aston Martin is a long way from its previous heights. Since IPOing in 2018 at 10,914p, the Aston Martin share price has fallen to around 2,030p. However, in the 12 months, the luxury carmaker has made a comeback, rising 45% from 1,401p to 2,030p.
Though this price doesn’t scream buy for me, the company is definitely heading in the right direction. I am most impressed with its new and improved management team, including chair Lawrence Stroll and new CEO Tobias Moers. These two experienced business operators have improved the company’s outlook significantly, while Stroll seeks to revamp Aston Martin’s reputation.
After leading a £500m takeover of Aston Martin last year, Stroll has rebranded his Formula 1 team under the manufacturer’s name. The strategy is twofold: bring success to the track, which will help transform the fortunes of this ailing brand.
While all of these are exciting developments, I believe that Aston Martin is still a risky investment. The luxury carmaker has made a string of mistakes over the past few years. It failed to match supply and demand, which led to excess production of its vehicles. It also borrowed too much money as it tried to develop new models.
As a result of these two mistakes, last year, the company was forced to ask shareholders and other creditors for more money to keep the business afloat. It has also had to write off millions of pounds of excess stock.
I definitely need to see a bit more innovation and electric vehicle investment before I invest. In the meantime, my foolish colleague Rupert has some other dirt-cheap UK stocks as alternatives.
Two weeks ago I was asking myself if I should buy Rolls-Royce shares. Over the last 12 months, the Rolls-Royce share price is down by almost 10% to 111p from 120p.
Rolls-Royce actually accrued losses of £4bn in 2020. However, this company is a leading aerospace player, and that’s where my bullish attitude comes in. Once lockdown ends and full flight normality returns, a lot of airplanes will need maintenance. Rolls-Royce sold £3.2bn of civil aircraft engines in 2019 and recorded a further £4.9bn in service revenues for the sector. Even in 2020, with Covid-19 severely limiting flights worldwide, service revenues came in at £2.8bn.
There is still a major risk that the airline industry could be irreparably damaged for years to come. With European Covid-19 cases on the rise, there is a real danger of prolonged flight grounding. This will severely affect its bottom line.
Despite these bear cases, I’m firmly set on adding Rolls-Royce to my shortlist due as I believe its aerospace strength makes it worth the risk.