Will this iconic FTSE 250 carmaker ever gain promotion to the FTSE 100?

Aston Martin now languishes towards the lower end of the FTSE 250, but could there be a recovery on the cards? Dr James Fox explores.

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Aston Martin (LSE:AML) was valued at £4.3bn at the time of its IPO in October 2018. Today, the FTSE 250 stock is valued at just £1.3bn. That means it’s even further away from the FTSE 100 than when it first listed.

So could Aston Martin stage a comeback? And will it ever reach the FTSE 100? I’m certainly bullish, but I’m not convinced it’ll be pushing for promotion any time soon.

Turning a profit

The firm remains loss-making. In February, Aston Martin reported an adjusted pre-tax loss of £171.8m for the year to 31 December. That was down from £451m a year earlier and was also smaller than analysts had forecast.

But with £392.4m in cash and cash equivalents, it doesn’t have too long left at this burn rate. Thankfully however, things are forecasted to improve. Take a look at the earnings per share (EPS) forecast below.

2023202420252026
EPS (p)-21.4-12.62.91?

The figures for 2024 onwards are predictions and we’re yet to have a consensus forecast for 2026. My assumption would be for something around 9p, given the impact of debt reduction, but also a slowing pace of earnings growth due to capital expenditure on its first electric vehicle, due to be launched in 2026. Until recently, analysts were pointing to EPS of 9p for 2025.

One notable positive from the 2023 earnings report was the expansion of margins. Over the year, gross margin improved 650bps to 39.1%, driven by ongoing portfolio transformation and improved average selling prices.

Establishing fair value

Aston Martin has six ‘hold’ ratings, two ‘outperform’ ratings, and two ‘buy’ ratings with an average share price target of 281p. That infers the stock is trading at a staggering 71.7% discount versus its fair value. However, analysts’ forecasts can be misleading, especially if they’re not frequently updated.

Nonetheless, I believe the lack of ‘sell’ ratings is indicative that the stock probably doesn’t deserve to fall any further. My calculations suggest that Aston is trading with a forward price-to-earnings (P/E) ratio under 20 times for 2026.

While that may sound a lot, just take a look at Ferrari. It’s the envy of the automotive because of its impressive margins and currently trades at 49.7 times forward earnings. Moving forward, Ferrari doesn’t get much cheaper because growth isn’t that strong. Take a look at the forward earnings multiples.

2024202520262027
P/E49.744.540.344.2

The bottom line

In short, if Aston Martin does reach profitability and continues trying to reduce debt, I’d expect to see the iconic carmaker trade with multiples greater than 20. Maybe not as high as Ferrari, but it’s a sector that commands high valuation multiples.

So will it reach the FTSE 100 any time soon? Hypothetically, let’s assume it trades at 30 times earnings. In such a scenario, it would need to achieve EPS around 20p to trouble the FTSE 100, using the current benchmark. I wouldn’t bank on it, but I’m considering buying more shares.

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.

James Fox has positions in Aston Martin. 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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