Aston Martin’s (LSE:AML) a beaten-down UK stock. I’d love to see the iconic car brand succeed, but things really haven’t been moving in the right direction.
The market clearly isn’t that bullish. The stock’s down 33.5% over 12 months and is very volatile. However, several analysts think it’s vastly undervalued. Let’s take a closer look.
Just a blip
Harry Martin from Bernstein reiterated his ‘buy’ rating on Aston Martin on 2 May. The analyst recognised that 2024 was likely to be a year of underperformance given the slip in Q1, but suggested this was just a blip.
The note read: “We reduce 2024 numbers slightly on the phasing into H2 this year, but change little next year and beyond. We rate £3.85 target price”.
Martin’s £3.85 target price is significantly above the £1.35 we see today. In fact, it’s a staggering 181% above the current share price.
What about the consensus?
Martin isn’t alone. In fact, the average share price target for Aston Martin is £2.47. That’s just the share price targets issued in the past three months. There are currently five ‘buy’ ratings, four ‘hold’ ratings, and one ‘sell’.
Other analysts are forecasting big gains too. George Galliers from Goldman put its share price target 175% above the current price. Akshat Kacker from JPMorgan has inferred a 64% premium. Both of these targets were also issued in May.
What’s been happening?
However, the most recent update from Aston Martin wasn’t great. The company’s been trying to raise volumes and margins as part of executive chairman Lawrence Stroll’s objective to get it back in the black.
On 1 May, the firm reported a double-digit drop in revenues and adjusted profits in the first quarter. Meanwhile, wholesale volumes dropped 26% in the first quarter to 945.
The company’s medium-term objectives require production to be ramped up to 7,000 vehicles a year. But as we can see, 945 vehicles a quarter doesn’t add up to 7,000 a year.
There were some positives however. Aston Martin expects production to pick up in the second half of the year. Management said this is because it’s ceased production and delivery of outgoing core models ahead of a planned ramp-up of “production of the new Vantage, upgraded DBX707 and our upcoming V12 flagship sports car”.
The bottom line
I’d like to say with confidence that things will improve, but we’ll have to keep on eye on the key indicators in the second half of the year.
It’s encouraging to know however, that the falling deliveries reflects lower production rather than falling demand. And gross margins are extremely strong — around 40%.
Looking further ahead, I think there’s cause to be pretty bullish on long-term demand for Aston Martin’s vehicles. It’s an iconic brand and I love what they’re doing with the new models.
The concerns aren’t to do with the vehicles. It’s debt. This sits around to £814m and it can be a slippery slope. Moreover, Aston expects to spend around £350m bringing its new models online. That doesn’t include its move to electrification.
Personally, I’m holding my shares. But I’m unlikely to buy more until I see signs of things really moving in the right direction.
