A dream for many who grew up watching James Bond movies was to own an Aston Martin. Having 007 drive Aston Martins over the years is one of the greatest product placements and partnerships ever seen between a company and a film franchise.
When Aston Martin Lagonda (LSE: AML) decided to become public and list itself, I very nearly bought into the initial public offering (IPO). The price put me off (1,700p) and I am certainly glad I abstained. Since the IPO about a year ago, the share price has declined significantly, currently trading around 586p per share.
In the short term, it has rallied 35% in the past month, which included a smashing 10% rise in trading yesterday. This made it the top performing stock across the FTSE 250 index. Could this be the turning point for a greater rally, or simply a short-lived bounce?
Reasons to buy
Like any product driven business, Aston Martin’s success hinges on how good its existing and new products are. Yesterday’s rally can be put down to the release of the new DBS Superleggera Concorde Edition.
The name may be a mouthful, but the car is beautiful. It also comes with an incredible price tag of £321,000. The new DBS Superleggera normal edition costs £225,000. These higher prices should help to boost profitability at the firm. On average, its operating profit margins are just 8%, but with the release of this higher priced car, margins should be increased, leading to higher bottom line numbers.
We have also had the announcement last week of the new utility vehicle which Aston will be starting to manufacture next summer, the DBX. This is the first SUV ever made by the firm, and the news was taken positively by the markets. This can be put down to the firm differentiating its product offering.
Reasons to sell
Quite simply, the overall car market is not good. Regardless of how promising the new cars are, if the demand is not there from consumers then it will not sell.
This was noted in the mid-year update, with CEO Andy Palmer commenting on the dampened outlook in Europe and the UK. Just when I thought I could write an article without mentioning the ‘B’ word, it rears up! Brexit has cast a cloud over many sectors in the UK economy, and due to the elasticity of demand, luxury goods have been hit hard.
Considering Aston only makes about 6,500 cars a year, consumer sentiment is very important. A reduction in only 650 or so car sales can knock 10% off car revenues.
I would personally avoid investing in Aston Martin right now, but be prepared to buy into it in the mid-term future. If we see the election and the Brexit bill pass smoothly then we could see a real pick up in domestic demand here in the UK.
This would really help Aston Martin, especially with the new SUV coming out, and I would look to buy into it then.
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Jonathan Smith and 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.