Investors have been selling Aston Martin shares this year. The stock has fallen around 76% as shareholders have become increasingly concerned about the outlook for the global economy.
However, following this decline, Aston Martin looks cheap compared to history. As such, bargain hunters have started to take an interest in the company.
Aston Martin share price on offer?
After recent declines, Aston Martin’s market capitalisation has fallen below £700m. That looks cheap compared to the company’s past performance.
Last year the business reported revenue of nearly £1bn.
That being said, the business is now facing significant challenges. The coronavirus crisis has caused demand for luxury cars around the world to slump. The company has had to suspend manufacturing operations, and this has hit revenue.
To help keep the lights on, management negotiated a bailout with shareholders and creditors. This deal has helped to support the Aston Martin share price. But it’s just the latest in a string of company bailouts.
The company has consistently failed to generate a sustainable profit. The current crisis suggests this isn’t going to change any time soon.
Difficult to value
Even though the company’s revenues have doubled over the past five years, the Aston Martin share price is difficult to value. Pre-tax profit has been negative for the past two years.
Measuring a company’s profit in comparison to its total market capitalisation is one of the fastest ways to measure the value of any business. If profits are negative, this process becomes impossible.
However, the group’s most valuable asset is undoubtedly its brand. This could be worth as much as £2.6bn, which is significantly more than Aston Martin’s current market capitalisation.
The company’s brand value suggests the stock offers a wide margin of safety at current levels. But the group’s outlook is likely to remain uncertain for some time.
With the global economy facing an unprecedented crisis, demand for the company’s luxury cars is expected to remain depressed until the end of 2020 at least.
With this being the case, the stock is unlikely to generate market-beating returns in the near future. Nevertheless, the value of the company’s brand suggests that the Aston Martin share price has the potential to generate positive investment returns over the long run.
Building a portfolio
Therefore, it might be best to own Aston Martin shares as part of a diversified portfolio. Holding the stock alongside a portfolio of other FTSE shares would allow investors to benefit from any profits while minimising losses if the firm encounters further problems.
Indeed, there are plenty of other stocks out there at present, which appear to offer excellent value for money after the recent stock market crash. Aston Martin is just one such opportunity.
Rupert Hargreaves has no position in any of the shares mentioned. 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.