With a £216m debt cut planned, is now the time to buy Aston Martin Lagonda shares?

Aston Martin Lagonda shares have been flying in recent months. Gordon Best investigates whether new efforts to cut debt present a buying opportunity.

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Aston Martin Lagonda (LSE:AML) is a British luxury car manufacturer that has been in business for over 100 years. The company is known for its high-performance sports cars, most famously used in the James Bond film series.

In recent years, Aston Martin Lagonda has struggled financially. However, a recent £216m cash injection from investors is aiming to slash the debt of the company. But does this create a buying opportunity?

How has the share price looked?

The Aston Martin Lagonda share price is up an incredible 150% in 2023, far outperforming many of the most popular and fastest growing companies in the market. This is likely due to the improving financial position of the company, and improving economic outlook generally.

As a result, there are plenty of reasons why a new investor may like the look of the company:

  • Aston Martin Lagonda is a well-known and respected brand with a loyal following.
  • Earnings are forecast to grow by 91% in coming years.
  • The price-to-sales (P/S) ratio of 1.9 times is below the sector average of 3.4 times.
  • The company has a strong product line-up, including the DBS Superleggera, Vantage, and DBX SUV.
  • Aston Martin Lagonda is expanding its global reach, with plans to open new dealerships in key markets.
  • The company is investing in new technologies, such as hybrid and electric powertrains alongside Lucid Motors.
  • Rumours of a potential takeover from major shareholder Geely have gained momentum.
  • The executive management team have been buying large amounts of shares, more than £2m in the last year.

What are the risks?

When a company that has been struggling sees a remarkable comeback, I always like to stay a little more cautious. The financial situation is indeed improving, but there are plenty of areas which concern me for Aston Martin Lagonda shares.

  • The company is still not profitable. In a high interest rate environment, with a high level of debt, this concerns me. With the company unlikely to break even until at least 2025, which would require 95% earnings growth, there is scope for disappointment.
  • The P/S ratio of 1.9 times is above the calculated fair value of 1.3 times based on forecast growth.
  • A discounted cash flow (DCF) calculation suggests the company is 194% overvalued at the current share price of £3.95.
  • The company’s return on equity (ROE) is very low, indicating that it does not efficiently use investments.
  • Shares outstanding grew by 533% in the last year. This means that investors have lost significant value in their holdings as the company looked for further investment. This is a major red flag for me.

Am I buying?

Investors in Aston Martin Lagonda have been rewarded in the last few months. However, whether this is a turning point for the company, or just a slight rebound in the share price, remains to be seen. Some of the company’s fundamentals seem to be improving, most notably in the growth of earnings, but with debt remaining such a major issue, and shares being diluted so aggressively, I don’t want to risk buying the shares at this price.

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.

Gordon Best 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.

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