Aston Martin triples its revenue! Is the share price dirt-cheap?

Aston Martin’s new DBX model continues to be a smash hit, pushing revenues higher. So is the share price too cheap?

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The Aston Martin (LSE:AML) share price skipped higher last week on the back of some fairly encouraging earnings. In fact, this latest boost has pushed the stock’s 12-month return to an impressive 64%. Considering the company was on the verge of bankruptcy in 2020, that’s quite a remarkable comeback, in my opinion.

So, what has the progress been like over the past quarter? And is now the time to buy some shares for my portfolio?

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The Aston Martin share price versus earnings

The famous British car manufacturer made an impressive return following the release of its DBX model. This SUV has a pretty hefty price tag. And yet, it proved to be immensely popular, reviving the firm’s revenue stream in a rather explosive way.

Over the last nine months, Aston Martin shipped 4,250 cars to wholesalers, 2,186 of which were the DBX model. Consequently, revenue over the period has almost tripped, jumping from £270m last year to £736.4m today. This surge has pushed the group closer to profitability, with pre-tax losses since the start of 2021 falling by almost 40%. And at the same time, net debt has also been cut by around £60m.

Needless to say, this is fantastic news for Aston Martin and its share price. Even more so, given management estimates that 6,000 vehicles will be shipped by the end of 2021, along with an updated DBX model launching by mid-2022.

But despite this encouraging report, the stock only moved by around 3% on the news. So, the question is, why did the market have such a muted response?

Borrowing costs are rising

While Aston Martin’s income statement is seemingly making a stellar comeback, the balance sheet still needs some work. The firm’s level of debt is causing some uncertainty among investors, especially since its net adjusted financing costs came in £54m higher than a year ago. This resulted in losses for the most recent quarter, rising from £80.5m in 2020 to £97.9m.  

These rising costs are a direct outcome of management refinancing some of its debt. And chief financial officer Kenneth Gregor admitted that interest payments on the firm’s obligations will likely remain substantial until 2023. With that in mind, I think the lacklustre lift in Aston Martin’s share price is pretty understandable.

The bottom line

This latest earnings report is yet another piece of evidence to suggest the worst is over for this business. Despite supply chain disruptions, Aston Martin seems to be getting its cars out of the factories and onto customers’ driveways. And depending on whether the long-anticipated £2.5m Valkyrie hypercar makes its planned debut next quarter, the company may even return to profitability before the end of the year.

This would undoubtedly be fantastic news for the Aston Martin share price. And the recent lacklustre response could indicate the stock is currently undervalued. But having said that, the jump in financing costs combined with increased interest payments does give me pause. Therefore, I’m keeping this business on my watchlist, for now.

Instead, I'm far more tempted by another automotive business that looks like it's on the verge of exploding...

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Zaven Boyrazian 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.

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