British luxury car manufacturer Aston Martin (LSE: AML) has been hit hard by the outbreak of Covid-19. The company watched its share price plummet by around 77% in the depths of the stock market crash. To put this into perspective, the FTSE 100 index only fell by 32%.
The company isn’t alone, however. A handful of other FTSE 350 stocks have also experienced a particularly harsh sell-off. For example, Carnival, easyJet, Rolls-Royce, and Cineworld suffered similar fates. Since then, all of these stocks have been rising over recent weeks thanks to a rally in global equities. So, with the Aston Martin share price climbing rapidly since mid-May, is now the right time to buy?
Since flotation on the London Stock Exchange in October 2018, Aston Martin shares have been on a constant downward trajectory. Known as one of the most high-profile flops since its IPO, the shares now trade at around 72p. By the time the company’s valuation hit rock-bottom on 14 May, those who bought shares on day one would have almost lost the entire value of their initial investment.
Many different factors account for Aston Martin’s lack of success in the stock market. Perhaps the most significant of these is a perpetual decline in sales. It’s remarkable how many earnings targets have been missed. What’s more, this year’s first-quarter results are nothing to get excited about. The group reported a 60% fall in revenue and an increase in net debt from £701.7m to £956.1m.
Light at the end of the tunnel?
However, a glimmer of hope has arisen from the appointment of a new CEO. Tobias Moers, CEO of Mercedes AMG, has stepped up the fill the role. As a result, the Aston Martin share price has rampaged upwards. It now sits around 134% higher in a matter of weeks.
Described as “the exact diametric opposite” of his predecessor, Moers’ proposed turnaround plan involves a radical overhaul of operations. I see this as encouraging news, but I’m not sure if it will prove to be enough to allow the company’s share price to continue rising.
More encouragement can be found in the words of the company’s chair, Lawrence Stroll, who stated that he is “even more enthusiastic and confident in the multi-year plan that we have set out to bring new and exciting products to market to drive demand and build the Aston Martin brand”.
Meanwhile, the luxury car maker continues to bleed cash and is in chronic debt. Unsold cars are stacked up at dealerships and unless something can be done to change this, I think Aston Martin is in serious trouble.
That said, if supply and demand can be rebalanced and a business overhaul successful, I expect investors to be rewarded with some handsome returns. Ultimately, if you’re confident in the new management team’s ability to turn things around, Aston Martin shares could prove a worthwhile investment over the long term, even at today’s price.
For now though, this seems too risky in my opinion and isn’t enough to persuade me that now is a good time to buy the shares. In my view, there are plenty of more attractive investment opportunities to be found elsewhere.
Matthew Dumigan owns shares in Carnival and Cineworld. The Motley Fool UK has recommended Carnival. 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.