This iconic FTSE 250 firm could recover and soar like Rolls-Royce

This FTSE 250 stock’s just hit an all-time low. It’s suffering under a huge debt burden and revenues actually slowed in Q1. But are the hazard warning lights on?

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Aston Martin (LSE:AML) stock slumped on Wednesday (1 May) after the FTSE 250 company revealed a larger-than-expected loss during Q1. The luxury car manufacturer’s really down in the dumps.

The stock’s at an all-time low, debt’s high, and revenues aren’t picking up. But could a Rolls-Royce-esque recovery be on the cards? The blue-chip FTSE 100 stock has surged more than 500% from its pandemic-era low.

Aston’s Q1 disappointment

Aston Martin was supposed to be on the road to recovery, but its Q1 earnings surprised investors for all the wrong reasons. Revenue declined 10% to £267.7m versus the first quarter of 2023. Meanwhile, and perhaps most concerningly, net debt rose by 20% to £1.04bn.

The company put the falling revenues down to a decision to halt production of existing models before it ramps up production of a new line-up later in the year. Wholesale volumes dropped 26% in the first quarter to 945. With the company’s near-term goal to deliver 7,000, that figure of 945 a quarter isn’t the required run rate.

Better things coming?

Aston Martin said that Q2 would be much the same as Q1. However, it noted that deliveries and revenue would be weighted towards the second half of the year. Executive chairman Lawrence Stroll said the downturn in Q1 was expected, and highlighted a year of transformation for the iconic car marker.

Moving forward, Aston will be producing its new Vantage, upgraded DBX707, and the upcoming V12 flagship sports car. Stroll also announced a new ‘special’ vehicle to be produced in Q4 — in line with Stroll’s focus on ultra-luxury vehicles with higher margins.

Battling debt

Growing debt has been a persistent issue for investors since Aston Martin shares were listed. But the thing is, it costs a lot of money to develop new models. Capital investment’s expected to cost the company around £350m in 2024 as it looks to bring these four models online.

It’s worth noting that Aston Martin will require more investment for the electrification of its range later this decade. It was recently reported that the FTSE 250 company would be pushing its first electric vehicle (EV) launch back to 2026.

Rebounding like Rolls-Royce?

Some 18 months ago, Rolls-Royce stock hit rock bottom. But, with a new CEO at the helm, it recovered. Could Aston Martin do the same? Well, it has a new CEO and ambitious plans, but the forecasts are looking weaker today than they have been for some time.

I’m continuing to hold my stock in the FTSE 250 firm, because if it does get debt under control and becomes profitable, there’s one big positive. And that positive is that luxury companies, typically with strong margins, trade with very high multiples. Ferrari, for example, is trading at 55 times earnings.

A comeback is certainly possible. I’m hopeful, but not banking on it.

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 and Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce Plc. 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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