Should I buy more Ferrari shares for my SIPP?

Ferrari stock has done very well in this investor’s SIPP portfolio. But is it attractively priced to warrant investing more money in it?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Unfortunately, I’ve not had a spare €400,000 lying about recently for a Ferrari (NYSE: RACE). That’s the average selling price (ASP) for a new one nowadays. But I was able to rustle up enough cash to buy a few shares of the Italian luxury automaker a while back for my Self-Invested Personal Pension (SIPP).

The stock has done very well, rising 90% in just the past two years. This is impressive when most other luxury stocks have been smashed due to weak China sales.

Created with Highcharts 11.4.3Ferrari PriceZoom1M3M6MYTD1Y5Y10YALL30 Nov 201930 Nov 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Should I add to this winning stock today? Let’s pop the bonnet and take a look.

Should you invest £1,000 in Bloomsbury right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Bloomsbury made the list?

See the 6 stocks

An exotic animal

At first glance, Ferrari might look like just another manufacturer of sports cars. However, I think it’s more accurate to view the Prancing Horse as the world’s leading luxury brand.

In Q3, the company only sold 3,383 vehicles. But it could likely triple that figure in a heartbeat if it chose to. After all, the cars are built to order for ultra-high-net-worth individual clients, with the order book stretching well into 2026.

The reason it doesn’t sell more is because Ferrari needs to maintain an aura of exclusivity. CEO Benedetto Vigna argues that seeing a Ferrari on the road should be like encountering an exotic animal.

Unfortunately, even if I had €400,000, I probably wouldn’t be able to buy a new Ferrari. There’s a massive waiting list to even be considered as a potential customer, while 74% of cars made last year were sold to existing clients. 

Ferrari will always deliver one car less than the market demands.

Enzo Ferrari

Serious pricing power

This scarcity gives the company incredible pricing power. As mentioned, the ASP is now around €400,000, up from €270,000 in 2015. Some special models exceed $1m.

The firm is also benefiting from customers enthusiastically paying up for increasing amounts of vehicle personalisations (extremely high-margin revenue).

As we can see below, Ferrari’s net margin has more than doubled inside the last decade, from 10% in 2015 to an incredible 21% today.

Created at TradingView

Most auto firms are high-volume, low-margin producers. Ferrari has flipped that on its head, with ultra-high margins on low volumes.

Brand image risk

Some investors might still question the investment case for this stock. After all, if the firm closely limits supply to maintain high demand, where’s the growth going to come from long term?

It’s a valid question, and Ferrari’s continued success is linked to the growing population of multi-millionaires and billionaires. Current trends indicate that this affluent (and aspirational) demographic is expanding, particularly in Asia.

This should enable Ferrari to gradually increase its annual production volumes while maintaining the brand’s exclusivity. It’s also moving onto the water by launching a sail racing team and building a racing yacht.

Yet the brand image is everything here. If that were to somehow diminish, then the company’s reputation and ultimately pricing power would be threatened.

Will I buy more shares?

I’ve been waiting for a decent pullback in the share price all year. There’s been a slight one — 13% since August — but it’s not enough for me. The stock’s still trading on a high forward price-to-earnings (P/E) ratio of 47.

That’s actually above luxury peer Hermès (43).

Therefore, I’ll continue waiting patiently for my opportunity to buy more shares.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Bloomsbury right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Bloomsbury made the list?

See the 6 stocks

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.

Ben McPoland has positions in Ferrari. 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.

More on Investing Articles

Investing Articles

Here’s the dividend forecast for Rolls-Royce shares as Trump rocks the markets

Rolls-Royce shares have joined in the volatility over the past week. However, with the direction being largely downwards, the dividend…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Dividend yields of up to 11%! Here are 3 UK passive income stocks to consider

Searching for ways to supercharge your passive income with UK dividend stocks? Here are three that have grabbed our writer's…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

£10,000 invested in NatWest shares at the start of 2025 is now worth…

NatWest shares surged into 2025, but things have become a little more complicated in recent weeks. Dr James Fox explores.

Read more »

Investing For Beginners

Why the FTSE 250 could outperform the FTSE 100 for the rest of the year

Jon Smith explains why the FTSE 250 could do better than its big brother when factoring in domestic exposure and…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Tariff fears send the Lloyds share price tumbling, but the dividend yield is climbing

Just when the Lloyds Banking Group share price had been rising steadily, along comes a global upheaval to knock it…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Here’s how a stock market crash could help an investor retire years early

A stock market crash can be alarming -- but for the well-prepared investor, it can also be an exceptional opportunity…

Read more »

Investing Articles

1 key fact to remember in this stock market correction

This writer takes a look at a FTSE 100 investment trust that is catching his eye after the recent massive…

Read more »

Investing Articles

I was wrong about the Tesla stock price!

Tesla stock's been affected more than most by ‘Liberation Day’. But our writer has other concerns about Elon Musk’s company.

Read more »