Aston Martin (LSE:AML) shares have fallen 22% over the past week. The figure is considerably greater than the average losses experienced by global stocks in the past few days.
But recent losses are just the tip of the iceberg. The luxury car manufacturer is down 72% over the past 12 months and a staggering 97% over the past three years.
So, at the current 515p share price, could I double my money with Aston Martin shares?
Long-term valuation issues
Aston Martin looks like an attractive business. It’s one of the coolest car brands on the planet and has an iconic name, famously linked with the James Bond franchise.
However, the group has taken on a lot of debt in an effort to grow. Net debt reached £957m in the first quarter. This debt, and it’s repayments, are likely to impact the group’s profitability in the coming years.
Moreover, Aston Martin is repeatedly making losses. The Gaydon-based business recently posted a small first-quarter loss of £42.2m.
The pandemic certainly hasn’t been good for the group and its growth plans. The current environment isn’t particularly conducive for luxury car sales either.
A very bad week
Aston Martin shares have lost around 22% of their value in the last five days.
Global markets have been spooked by higher than expected inflation in the US and the possibility that the Fed will increase rates by 75 basis points this week.
This has been compounded by poor economic forecasts from the UK and Germany.
But the reintroduction of tough Covid-19 restriction in China have impacted Aston Martin. The world’s most populous nation is an important market for the British brand.
Doubling my money
Could I double my money with Aston Martin shares? Well, if Aston Martin starts moving towards realising executive chairman Lawrence Stroll’s objectives, I think so.
In 2021, Aston Martin shipped 6,600 cars. But by 2024/25 Stroll hopes to increase this number to 10,000 cars per year. In turn, the chairman wants to achieve £2bn in revenues and £500m in adjusted EBITDA by 2024/25.
The big issue is actualising these objectives.
Shares are currently valued at 515p. Reaching 1,030p a share requires considerable revenue growth and the ability to start reducing debt.
Revenue for 2021 was just over £1bn. So Stroll’s company has four years to double revenue to hit his target.
Revenue grew 4% year-on-year in the first quarter. But that growth rate is not going to be enough to double revenue.
Aston currently has a price-to-sales ratio of 0.6. While that appears very low, it reflects the group’s high debt levels.
However, profitability and revenue are very different. I don’t think we need to see EBITDA of £500m to double the share price.
If pre-tax profits were to reach £50m, the group would have a fair P/E ratio of 12 at today’s price. That sounds achievable to me, but I’ll be watching closely.
Prospects
I would actually buy more Aston Martin at this price, but I appreciate there’s a lot risk.
The group has a new CEO — former Ferrari boss Amedeo Felisa. The Italian manufacturer has staggering margins. Aston could learn a lot from him.
