It’s been a good few months for UK stocks and for many companies on the FTSE 250 specifically. The second-tier index has surged since April, driven by a broader sense of optimism for global stocks, but also a potential recognition of the UK’s preferential trading agreement (on relative terms) with the US.
One stock that hasn’t performed as well is Aston Martin (LSE:AML). While it’s up 2.5% over three months, it’s down 32% over six months. Despite the company promising to turn the business performance around, it’s just not happening.
What’s the latest?
In its interim results on 30 July, Aston Martin lowered its full-year profit forecast, citing disruption from newly-imposed US tariffs. The luxury carmaker now expects adjusted EBIT to edge closer to breakeven for FY 2025, down from its previous guidance.
While modest wholesale volume growth’s still anticipated, gross margins are expected to remain flat.
The downgrade reflects several pressures, including foreign exchange volatility, increased investment in software upgrades, and efforts to support Chinese dealers in managing inventory levels.
In H1, Aston Martin posted a narrower pre-tax loss of £140.8m (H1 2024: -£216.7m). However, revenue fell 25% to £454.4m, with wholesale volumes down 4%.
CEO Adrian Hallmark highlighted production adjustments during Q2 as the group awaited a UK-US trade deal. Shipments to the US resumed in June, following the agreement’s implementation on 30 June.
Management continues to push for a fairer quota system to ensure long-term access to the reduced 10% tariff rate.
Why are investors still interested?
Obviously, it’s not a popular stock. But some investors are continuing to buy Aston Martin shares. So why is this?
For some, it comes down to belief in the long-term turnaround story. Despite ongoing losses and persistent doubts about management execution, there’s a perception that the brand still holds untapped value — particularly in the ultra-luxury segment where margins can be high.
Others are betting on the potential impact of strategic partnerships, such as the tie-up with Mercedes-Benz, which brings both technology and credibility. There’s also a speculative angle. With the stock trading well below its IPO price, contrarians see a deep-value opportunity — albeit a risky one.
In short, while the broader market remains sceptical, a subset of investors sees enough optionality and brand equity to justify taking the risk.
The bottom line
Personally however, I believe the risk of failure’s simply too high. While management continues to project a path to profitability, the numbers tell a more troubling story.
Despite multiple rounds of refinancing and capital raises, net debt‘s increased to over £1.1bn in 2024 and is projected to exceed £1.3bn by 2027. That’s in the context of a shrinking market capitalisation, which is down nearly 90% from 2021 levels.
Projected valuation metrics provide little reassurance. Free cash flow remains negative through 2026, and while it may turn modestly positive in later years, free cash flow yield isn’t projected to break above 5%, even in 2027.
Meanwhile, statutory price-to-earnings remains negative throughout the forecasting period.
The brand undoubtedly carries prestige, but the finances remain fragile. Execution risk’s high, dilution risk persists, and profitability remains elusive. In short, this is a high-risk recovery play with narrow margin for error.
Investors may want to consider more stable opportunities elsewhere.
