There may be a beautiful roar that emanates from an Aston Martin (LSE: AML) engine. But sadly, the same has not been true of the Aston Martin share price since the luxury carmaker listed on the stock market in 2018. The company has been a disaster for long-term shareholders.
In the past month though, the shares have climbed 20%. Could that mean they have bottomed out and now is a good time to add them to my portfolio?
Long-term trend is mixed
I do not think so. Over the past month, the company released its results for the third quarter. Maybe investors were impressed by what they saw and decided that the Aston Martin share price offered value. That would explain the improving share price.
The company did report some positive news, such as year-to-date revenue climbing 16% compared to the same point last year. Given that wholesale volumes actually fell in the first nine months of the year, that shows Aston Martin is successfully raising its prices and changing the sales mix to enable higher revenues, even on smaller volumes.
But I have never seen selling Aston Martins as the tricky part of what the company does. Making and selling them profitably is where things get more difficult. Even at the operating level, the company lost almost £60m in the third quarter. That is over £40,000 for every car wholesaled in the quarter.
Add in non-operating costs, such as the net cash interest payments of £65m, and the total pre-tax loss for the quarter was a whopping £226m. While revenues are growing, sales volumes remain below where they were at this point last year and the company’s debt-heavy balance sheet continues to drag down financial performance.
Fixing the debt issue
At some point the company will need to fix the problem of the debt pile leading to a big loss each quarter. One way to do that would be higher sales revenues. There is progress on this front – but there is still a lot more work to do. Another way to do it would be issuing more shares. Aston Martin has done that repeatedly, including in its most recent quarter.
But while that can help improve the balance sheet, it dilutes existing shareholders. Since listing, the Aston Martin share price has lost 97% of its value. Part of that fall reflects the heavy dilution of new shares issued to boost funds.
Is the Aston Martin share price turning?
Looking at the 20% increase in the past month, it might be tempting to think that the Aston Martin share price may be on an upwards climb. That could turn out to be the case.
However, I have no plans to add the company to my portfolio. Aston Martin has a large debt load. Its sales revenues are growing but that on its own does not mean it will be successful, given how much money it needs to spend on interest. The shares could still sink even from here.
