It’s fair to say that FTSE 250 stock Aston Martin (LSE: AML) has been a dog in recent years. Over the last two years, for example, its share price has declined about 70%.
Is the stock, which is currently trading for just 65p, capable of a stunning Rolls-Royce-like rebound? Let’s discuss.
Two legendary British businesses
When I compare Aston Martin today to Rolls-Royce a few years ago, I do actually see a few similarities.
For starters, like Rolls-Royce, Aston Martin is a famous, well-respected British business that has been around for a long time. While it makes high-performance sports cars and Rolls-Royce specialises in aircraft engines, it’s known for its engineering excellence just like Rolls-Royce is.
Second, the share price has tanked – according to my data provider the stock is down about 98% from its IPO in 2018. This reminds me of Rolls-Royce in 2022, when it was trading miles below its highs (under 70p).
Third, operational performance has been really poor. This year, for example, Aston Martin is expected to generate a net loss of about £320m.
Back in 2022, Rolls-Royce produced a net loss of around £1,270m. So, at the time, it was losing a ton of money too.
Finally, a new CEO, Adrian Hallmark, has come on board recently. He’s aiming to fix the company’s long-standing financial and operational problems and achieve sustainable profitability.
This reminds me a lot of when Tufan Erginbilgic came to Rolls-Royce in 2023. He came in to improve the company’s operational performance and he did just that, increasing profits significantly.
Is a U-turn on the horizon?
So, I guess the key question here is – can Adrian Hallmark do to Aston Martin what Tufan Erginbilgic has done with Rolls-Royce? Can he stop the rot and turn this legendary British company into a consistently profitable business, boosting the share price in the process?
Personally, I think it’s going to be hard. Because right now, the automotive company is facing a lethal combination of negative forces.
One issue is that sales in China – a key market for growth – have slowed. It seems that Chinese consumers, especially the younger demographic, are increasingly favouring luxury vehicles from brands such as NIO and BYD.
Other luxury brands , such as Ferrari, are also providing intense competition.
Further complicating the backdrop is the fact that the company is facing higher costs, supply chain disruptions, and US tariffs. Note that it expects to have capital expenditures of £1.7bn over the next five years as it pivots to an electrification strategy, which means that a sudden turnaround in profitability is unlikely.
A third issue is debt. At the end of September, net debt stood at £1.4bn, meaning that interest payments are going to be another obstacle in Hallmark’s way.
My view
Put all these factors together, and I think it’s very unlikely that Aston Martin will be the ‘next Rolls-Royce’. To my mind, the problems here are too deep, at least in the medium term.
Of course, after such a large share price fall, there’s a chance of a rebound at some stage. If sales were to pick up, or losses narrowed, the stock could get a decent bump.
I don’t think the stock is worth the risk today, however. In my view, there are better opportunities in the market.
