Aston Martin (LSE: AML) shares may remain 92% lower than their IPO price, but they’ve been on fire this year. In fact, they’ve nearly doubled as investors have warmed up to the idea of a turnaround in the luxury automaker’s fortunes.
Today (29 September), they jumped 13% to reach 296p.
After this latest rise, are shares in the FTSE 250 firm worth buying today? Let’s discuss.
The shares rose today after it was announced that Lawrence Stroll’s Yew Tree Consortium had bought an additional 26m shares of Aston Martin. This upped its majority stake by 3.27%, taking its ownership to 26.23%.
Stroll said: “This increased investment demonstrates our continuing, long-term commitment to the company, our conviction for the future and the shareholder value the company will deliver“.
Stroll became executive chairman in April 2020 after leading the consortium’s initial investment in the struggling British carmaker. But there is a complex global web of ownership, with Saudi Arabia’s Public Investment Fund (PIF), Mercedes-Benz, and Chinese automotive giant Geely also having large stakes.
While Aston Martin’s brand is undoubtedly iconic, with its cars still able to turn heads in a street, the company’s ability to make profits has long been a problem.
But Lawrence Stroll knows how to successfully market luxury brands. The Canadian made his billions licensing labels like Polo Ralph Lauren, Tommy Hilfiger, and Michael Kors around the world.
And though his lifelong passion is high-powered luxury cars, he didn’t buy loss-making Aston Martin as a pet project. He intends to turn the firm into an ultra-luxury marque that churns out massive profits like Ferrari.
How is this ambition progressing?
A long road ahead
Well, in its latest first-half report, the company’s revenue rose by 25% year on year to £677m. It sold nearly 3,000 vehicles at a core average selling price (ASP) of £184k, up 12% from £164k in H1 2022. Ahead of upcoming launches, its current range of GT/Sports cars was sold out for 2023.
This is highly encouraging as it suggests recent price hikes aren’t affecting demand. And it reminds us that Aston Martin’s well-heeled customers certainly aren’t feeling the pinch.
Still, the firm is posting losses, with an interim pre-tax loss of £142m. That is down significantly from the year before, but analysts don’t expect the company to record profits for the next couple of years.
Meanwhile, with a cash balance of £400m and an additional £60m of credit available, I do fear more shareholder dilution is on the cards.
Additionally, the firm is going to pivot to electric vehicles (EVs) at some point over the coming decade. Yes, it has partners to help here, including EV specialist Lucid Group, but this will need massive investment.
Unlike Ferrari, it won’t be embarking upon this transition from a position of incredible financial strength.
Which leads me onto the the firm’s net debt. This has been reduced recently, but it was still significant, at £846m at the end of June.
Weighing everything up, my take is that Aston Martin shares still look too risky to invest in today. There remains uncertainty around sustainable profits and the path to electrification.
I reckon any investment would be highly speculative, and its sizing should reflect that.