For the past few months, I’ve been really close to buying Aston Martin Lagonda (LSE:AML) shares. When I consider the potential long-term upside, even a modest investment could yield me a very high return. Yet each time I get close, I decide to wait and see if Aston Martin shares will fall further over the next week. It always does. Here’s why I’m torn on what to do right now.
Trying to find good value
The main reason why I’d buy the stock is as a value play. This style of investing focuses on buying when the share price is below the long-term fair value. A stock might drop below this level based on investor fear, or because people think there’s little value left in the company.
I don’t share this view and think that Aston Martin is well positioned for the future. The half-year results revealed several encouraging signs. For example, the average sales price of £164k in H1 2022 was up 9% from £150k in H1 2021. Revenue also climbed by 9%. Fundamentally, this shows that there’s demand for the cars being produced. In fact, it noted that “retail customer demand continued to run ahead of wholesales in H1 2022”.
Even the loss looked more damaging than it actually was. Of the £285m loss, a massive £134m was down to a revaluation from the falling exchange rate. Of course, it’s still a negative, but it’s important to note that this is a non-cash impact.
All of the above leads me to conclude that the business does have good value in its current operations.
Aston Martin shares tell a different story
There’s a large disconnect between my interpretation of the business and the performance in the share price. It’s down 85% in the past year, with 47.3% of that coming in just the past three months.
Sure, the supply chain issues in the automotive industry are a clear negative. It also doesn’t help that Aston Martin is posting losses when other manufacturers are still profitable. In an uncertain market with a gloomy economic backdrop, I get why new investors would want to park money in a profitable car company instead of this one.
What I think it boils down to is whether the share price is oversold on the basis of broader stock market fear, rather than business-specific issues. I think that this is indeed the case at the moment.
However, it can take months or years for a value stock to move back higher. As a long-term investor, this doesn’t bother me too much when the share price fall has been fairly modest. But when I’ve seen the share price halve in just the past three months, it does worry me.
The last thing I want to do is buy now and see the share price drop another 50% in a few months. This would mean I’d need the stock to double in value just to break even. On that basis, I still can’t convince myself to buy right now.
