As the Aston Martin share price hits 2021 lows, is now the right time to buy?

Jon Smith talks through the depressed levels currently seen with the Aston Martin share price, and considers if now is a good dip to buy.

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Yesterday, the Aston Martin (LSE:AML) share price hit its lowest level since the year began. It traded at just above 1,300p, before rallying slightly. At the moment, the share price sits at 1,398p. Given that it has traded up to 2,290p this year, the extent of the fall over the past few months is clear. So is now the right time for me to buy the shares?

A falling knife over time

First, let’s consider the share price from a long-term perspective. Over a three-year period, the shares are down 94%. That’s quite a staggering figure. Over one year, it’s a more tame 14.6%. 

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Fundamentally, I could argue that the IPO price back in 2018 of 19,000p overvalued the business, so it was always going to correct lower over time. Added to this was the hit from the pandemic. With the UK and other countries falling into a recession, demand for luxury sports cars fell considerably. The pandemic also created a spiral, with lower revenue forcing the business to restructure debt.

In the short term, the Aston Martin share price has fallen due to news that CFO Kenneth Gregor is stepping down. This news last week saw the shares move lower, as he’s a key cog in the board management machine at the company. The good news is that he’ll be staying on until next summer, so the transition with his successor should be a smooth one.

Considering both sides

When looking for reasons to justify a turnaround in the Aston Martin share price, I can point to the latest financial results up to and including Q3. For the first nine months of the year, revenue jumped 173% compared to 2020. This means that it’s on track to meet the full-year guidance set out earlier in the year. 

Guidance looking forward to 2022 is also positive. The transformation project taking place at the moment includes various exciting product launches. That means new editions of the popular SUV, as well as hybrid vehicles and other supercars. With this pipeline, I think that demand (and revenue) should continue to rebound next year. This should help to pull the Aston Martin share price higher if the financial outlook is also met.

On the other hand, there are still risks ahead. The luxury sector is one of the hardest hit during economic downturns. With uncertainty around Covid-19 still very much a factor, we could be in for a tough winter. If economic data starts to disappoint, I think the share price could struggle to move higher. Negative sentiment could be a real drag here.

On top of this, net debt is still a concern. It stood at £808.6m in the Q3 results. When I consider that total revenue for the business in 2021 was £736.4m, it puts it in perspective!

Overall, I do think that the Aston Martin share price can do well in years to come. However, I’m going to hold off buying right now until I get more clarity on the impact of the new virus variant.

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Jon Smith and The Motley Fool UK have 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.

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 considered, so you should consider taking independent financial advice.

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