Aston Martin Lagonda (LSE:AML) is the ultimate luxury sports car and the epitome of British showmanship. From its image, you may be forgiven for thinking the company is rolling in wealth. But for investors, the Aston Martin story has been a stormy one. Has the £2bn business turned its fortunes around to create an exciting growth stock, or are should I consider investing elsewhere?
The Aston Martin share price has risen 75% over the last year.
The company has several exciting ventures in the pipeline keeping shareholders interested. The most significant is an agreement with Mercedes Benz. This is providing AML with a powerful path to electrification.
Plus, through its Project Horizon operational efficiency plan, Aston Martin is improving the way it runs its facilities. Under new management, Aston Martin is aiming for long-term profitability and much-improved business performance.
Much improved financial position
Having emerged from bankruptcy no less than seven times in its 108-year lifetime, Aston Martin has experienced a turbulent financial existence.
And it was touch and go after the pandemic hit in 2020 whether it would face yet another insolvency. That’s because it faced a large overstock of sports cars in its dealer network.
Thankfully, due to several refinancing deals, and careful rebalancing of its supply and demand, the company is now in a more stable financial position.
Last year Aston Martin raised £800m in new equity and refinanced all its notes that were due to expire in 2023. Their expiry dates have now been extended to 2025/26.
This restructuring and streamlining of the business has greatly improved the stock’s financial stability, further enhancing investor confidence.
In its recently reported Q1 results, Aston Martin revenues soared, and losses were less than feared. Wholesale volumes were up 134% year-on-year, and Aston Martin has over £500m in cash on its balance sheet.
Furthermore, it supported its full-year guidance, gross margins improved, and Aston Martin even believes it could be cash flow positive by 2023.
Shareholder risks
Unfortunately, it’s not all good news. Earlier this week, Aston Martin announced it is suing Swiss car dealer Nebula Project and its board members. It accuses them of failing to pay some customer deposits for orders of Aston Martin’s Valkyrie sports car. The company estimates this will dent its full-year profits by up to £15m.
Meanwhile, the Delta variant of Covid-19 is rampaging around the UK, and there are concerns the vaccine won’t contain it. This could be detrimental to many stocks, particularly those in the luxury goods market.
Nevertheless, Aston Martin vehicles are status symbols and a luxury brand with rising demand.
According to Aston Martin’s director of investor relations, Charlotte Cowley, 90% of Aston Martins built are still in existence. I think this is a very impressive figure that shows the lasting quality of the cars.
Ultimately, I think there’s a lot to like about Aston Martin. It’s very much a speculative investment, but I may add a small allocation of the shares to my Stocks and Shares ISA.
