3 reasons I won’t touch Aston Martin shares with a bargepole!

The Aston Martin share price has taken a battering over the past 12 months. Here’s why I think it could be a disaster zone for contrarian investors.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Woman pulling baffled face

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Aston Martin Lagonda (LSE: AML) share price has collapsed 94% during the past year. In recent days, it’s recovered back above £1 but a fresh slide could happen at any time.

Its plunge into penny stock territory this October prompted some light dip-buying. But I’m not prepared to invest a single penny into the luxury car maker.

Here are three reasons I’m avoiding Aston Martin shares like the plague.

1. Balance sheet woe

As a UK share investor my main concern is over the motor manufacturer’s weak balance sheet.

Aston Martin gave itself a lifeline last month. It raised £654m when Chinese automaker Geely and the Saudi Arabian sovereign wealth fund invested in the company.

However, Aston still has a mountain of debt that it needs to eradicate. It had £1.3bn worth at the midpoint of 2022. It could still struggle to get its growth plans off the ground like developing new models and electrifying its range.

2. The sinking economy

Aston Martin’s colossal debts would be a worry at the best of times. They could endanger the company’s growth plans and, potentially, its ability to eventually pay dividends.

The company’s weak balance sheet is particularly concerning today given the state of the global economy. As people start to rein in spending, demand for its high-value products could sink. At the same time, runaway inflation threatens to make losses much higher than City forecasters currently expect.

Aston’s ability to pay down these debts might become a massive problem.

3. A competitive industry

There’s no doubting that Aston Martin has one of the strongest brands out there. Being James Bond’s favourite carmaker, too gives it an appeal that few others can match.

Brand strength is one of the reasons why its sports cars remain in high demand today. It reported in late July that its GT and sports cars are “sold out until 2023.” It added that sales of its DBX sports utility vehicle (or SUV) were up a whopping 40% year on year during the first half of 2022.

The problem, however, is that the firm operates in a highly competitive market. And it’s not the only world-class aspirational brand that affluent car buyers have to choose from.

Rolls-Royce and Bentley are two other formidable and fashionable British brands. Also vying for customers are Lamborghini, Mercedes-Benz, Ferrari, and Porsche, just to name a handful of others. And worryingly they are already making big strides in the field of electric cars, a critical growth area for Aston.

Too much risk

Aston Martin has terrific growth opportunities as the number of ultra-wealthy individuals grows. Sales of luxury and high-end sports cars is tipped to balloon over the next decade, and especially in regions like China where the company is already heavily focused.

But as an investor I’m required to balance the potential rewards I could enjoy with the risks. And in this case the dangers of parking my cash here are colossal. I’m far happier investing in other UK shares today.

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 assessed. Consider taking independent financial advice.

Royston Wild 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »