With the long-term disappointment of luxury car maker Aston Martin, some UK investors will naturally be cautious about considering another company in the same sector. Yet with the Ferrari (NYSE:RACE) share price up 45% over the past year, and 198% over the past five years, it’s racing ahead in more ways than one. Here’s why I like the stock.
Short-term drivers
The company has benefited from several tailwinds over the past year. The strong financial results from quarterly earnings have helped to underpin the share price, with it steadily rising. Confirmation of the 2023 results came last week, with the firm growing revenue by 17.2% versus the prior year.
For the first time, the business posted a net profit that exceeded €1bn and the annual EBITDA margin rose to 38.2%. This is a very strong performance, especially when you consider that some luxury brands (Burberry comes immediately to mind) have really struggled recently.
Another positive came last week, with the announcement that Lewis Hamilton will be racing for Ferrari in the Formula 1 championship next year. Commercial and brand revenues hit €572m last year, largely attributed to Formula 1 merchandise. Therefore, the signing of Hamilton should be a boost in this area for Ferrari.
Looking at the future
I’d be very happy if I’d bought Ferrari shares last year. The fact that I didn’t means I’m left wondering if I’ve missed the boat.
When I consider the guidance the management team have provided for 2024, I think the stock can grow further. It expects revenue to grow by at least 6.7% with the profit margin to hold steady. Given the margin is already a very high 38.2%, it provides a larger buffer against any potential cost increases or revenue underperformance.
We also haven’t seen the benefit of the commercial revenue impact from the signing of Hamilton. This should be reflected more accurately in 2024, which I think could be better than currently expected.
Finally, Ferrari is leading the pack when it comes to listed luxury sports car firms. Aston Martin and Porsche are two big competitors, but I don’t see them offering much of a threat going forward.
Starting the engine
Of course, Ferrari isn’t perfect. It has cost inflation pressures which are likely to remain for a while. This means revenue has to grow simply to keep up with rising costs. Further, the size of production facilities means that growth will eventually be capped, as it can’t keep up with the demand from customers.
Ultimately, I think the business is in a great place. I don’t think it’s attracted a lot of attention in previous years from UK investors, but feel this is now changing. I’m definitely considering adding the growth stock to my portfolio in the coming weeks.
