When it comes to underperformance, luxury carmaker Aston Martin Lagonda (LSE: AML) shares really take the prize. Since arriving on the market back in October 2018 at a frankly-absurd price of £19 a pop, the stock has crashed over 95% in value.
Does a boardroom shake-up and fresh cash change things? Not in my view.
Steer clear of Aston Martin’s shares
I’ve no issue with the quality of what Aston Martin produces. But this seems to be the heart of the problem: beautiful cars, blooming awful investment.
Could we have seen the share price collapse coming? I think so. In its 107-year history, the company has gone bankrupt seven times. This suggests there is something utterly flawed about this business, regardless of who is in charge. It feels important to mention this record given the market’s positive reaction to the news that CEO Andy Palmer is to be replaced by Tobias Moers.
Let’s not underestimate the size of the task facing Mr Moers. Sales of cars had already pretty much halved in the first three months of 2020 compared to last year, forcing the company to report a pre-tax loss of near-£119m!
Yes, a looming recession is unlikely to stop those actually capable of buying the cars from doing so, but the firm’s tendency to burn through cash is sufficient to make me think that moving into a higher gear may take a very long time, if it happens at all. The recent securing of £500m in emergency funding will help, but it may not be enough to get the company really motoring.
Good money will have been made on Aston Martin shares in recent days. Despite this, I’m concerned that this momentum may be lost as traders bank profits and drive away. Buyers beware!
A better Foolish bet
If you’re in the market for a luxury brand right now, I’d opt for a company with a better track record of making money for its owners. While admittedly biased (I hold the stock), I think FTSE 100 giant Burberry (LSE: BRBY) is a great example.
Now, don’t get me wrong — I’m not saying that Burberry isn’t in a tight spot itself. Like a huge number of businesses, the company has seen sales falling off a cliff thanks to the coronavirus pandemic. Guidance on FY21 numbers has been pulled, dividends have been shelved and the company has had to find additional ways of saving cash where it can.
But contrast Aston’s pre-virus performance with that of Burberry. Trading at the latter before the outbreak was strong with sales in the year to 28 March “ahead of expectations“. It also reported having £887m in cash on the balance sheet a week or so ago.
Sure, things could be difficult for a while. Another market crash certainly isn’t beyond the realms of possibility. At 26% below its mid-February price though, I’d say at least some of this bad news is priced in. This is why I’ve been adding to my holding over the last few weeks.
Given that sales of luxury goods tend to recover quickly from recessions, I’m confident that Burberry can emerge a stronger company. There could be some volatility yet to come, but those intent on holding for years rather than months should still end up with a great result.
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Paul Summers owns shares of Burberry. The Motley Fool UK has recommended Burberry. 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.