The Aston Martin Lagonda (LSE: AML) share price has almost doubled in the last year, giving some hope to long-suffering holders. Having been averse to buying the stock since it listed on a staggeringly high valuation back in 2018, is it time for me to cut the company some slack?
“Significantly improved performance”
Today’s interim results do seem to suggest the luxury car-maker has turned a corner. Although in line with expectations, AML announced a “significantly improved performance” over the first half of 2021.
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A total of 2,901 vehicles were sold, a rise of 224% on that achieved over the same period in 2020. Over half of these were DBXs – the company’s first foray into the SUV market.
Naturally, this improved AML’s top line. Half-year revenue more than trebled to just shy of £499m. As you might expect, the jump was particularly noticeable during the second quarter. After all, this period coincided with the first UK lockdown last year. Although still reporting a pre-tax loss of £90.7m, this was clearly far better than the £227m hit AML endured last year.
There’s an indication this momentum will continue, which should be good news for the Aston Martin share price. Near-term demand for the firm’s current models looks to be solid and within forecasts. Indeed, the carmaker made very few changes to its full-year guidance with 6,000 vehicles expected to be sold. A target of 10,000 sales (and revenue of around £2bn) has been set for 2024/25.
Still in the pits?
I reckon today’s numbers are as good as holders could’ve expected. News that manufacturing hasn’t been impacted by global chip shortages, at least so far, is encouraging. Recent highly-experienced additions to AML’s board, such as former Ferrari CEO Amedeo Felisa, further support the bull case.
Then again, it’s also important to put today’s results in context. Many businesses are reporting jumps in revenue as normality slowly returns. So, yes, AML’s figures are fine. However, I don’t think they can be regarded as exceptional.
At nearly £800m, the company’s level of net debt pile also remains an issue for me. Taking on debt isn’t always a bad thing but a robust balance sheet does allow a business to remain resilient when the tough times come. And whether it’s down to Covid-19 or another ‘known unknown’, you can be sure the market will be rattled by something sooner or later.
My dislike of AML wasn’t just due to the ludicrous valuation slapped on the company a few years ago. It was also due to vehicle manufacturers having a history of being pretty poor investments.
To paraphrase UK fund manager Terry Smith, things made from durable materials like metal tends to generate a lacklustre return because people tend not to bother replacing them during tough economic times. Whether this applies to a premium brand like AML is another thing, of course.
Based on the market reaction so far this morning, I suspect we may have already seen a bottoming in the Aston Martin share price. Even so, I can think of a huge number of other growth-focused, financially-sound companies I’d rather invest in right now.
And when it comes to buying a firm specialising in things that the majority of us can’t afford, there’s a far better option in the FTSE 100, in my view.