Aston Martin (LSE: AML) shares have accelerated away over the past five days. The stock has risen by nearly 20%, outperforming the FTSE 100, which has only gained 2% over the past week.
Investors seem to be buying back into the luxury carmaker after it removed its previous CEO. It has also laid out a restructuring plan to reduce debt and return to profitability over the next few years.
The new CEO has his work cut out, but it looks as if he is the right man for the job.
New blood at Aston Martin
The new CEO, Tobias Moers, is a force to be reckoned with in the car industry. He was handpicked by Aston Martin’s new chairman and part-owner Lawrence Stroll
Moers previously worked at Mercedes’ high-performance AMG business. He has been described as the exact opposite of Aston’s former CEO Andy Palmer.
Under his stewardship, AMG grew from a niche engine-making business into one of the best performing divisions of Mercedes. Last year, the group produced 130,000 engines and was reported to be responsible for generating a sizeable percentage of the annual profits of Mercedes’ parent company Daimler
Investors seem to be betting that Moers will be able to repeat the success he had at AMG. It’s going to be a tough job for Aston Martin’s new manager. The UK-based automaker has been bleeding money since its IPO.
And it’s not as if the company has a history of profitability either. In the 107 years since its founding, Aston Martin has declared bankruptcy no less than seven times.
AMG was in a similar position when Moers first took over, but he was able to revitalise the business during his years in charge. There’s no guarantee he will be able to pull off the same trick with Aston Martin, but as an industry veteran, he stands a better chance than most.
But if Moers can pull it off, shareholders could be well rewarded over the next few months. As I noted the last time I covered the company, Aston Martin’s most valuable asset is its brand. The car maker’s brand alone could be worth as much as £2.6bn, significantly more than its current market capitalisation of £900m.
These figures imply the shares have a wide margin of safety at current levels. Of course, only time will tell if the new CEO can pull off the impossible and turn this struggling luxury car manufacturer around. However, considering the value of the company compared to its brand, the risk of investing may be worth the reward at this stage. But it may be best to own the Aston Martin share price as part of a well-diversified portfolio.
Using a well-diversified portfolio may allow investors to benefit from Aston’s upside potential while minimising downside risk. That’s essential in the current environment when the outlook for so many companies is highly uncertain.
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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.