Aston Martin Lagonda (LSE: AML) has been one of the worst IPO investments I can remember. Since flotation, the shares have lost around 90% of their value. Many stocks are suffering as a result of the Covid-19 pandemic, and we have no exception here. The Aston Martin share price is down 70% in 2020. That fall, though, is only a small portion of the full slump.
Rescuer Lawrence Stroll has now stepped in and invested a lot of his own cash. And Tobias Moers has taken over as chief executive. Mr Moers joined from Mercedes-AMG, and he’s very much a heavyweight in the business.
The new management has made a big effort to streamline the company. The board has pulled back from grand early ambitions, and has set more modest sales targets. Expenditure has been cut, and jobs have sadly been lost. Hopefully, the result will be a stemming of the firm’s haemorrhaging of cash.
Aston Martin share price rising
The market has reacted favourably, and the Aston Martin share price’s headlong slump has been arrested. Even better, since a low in May 2020, the shares are now up 80%. Investors don’t get many 80% profits in such a short timescale, so those who managed to get in at the bottom have done well.
But what now? The big question is over Aston Martin’s long-term future. I think that’s as uncertain as ever.
Fallen shares, worth only a small fraction of their historic levels, can be very enticing. It’s so easy to think along the lines of what goes down must come up, even if perhaps not consciously. When will it get back to what I paid for it? When will it recover from its fall? Tell me you haven’t wondered along those lines about the Aston Martin share price.
My recovery rule
I like a good recovery opportunity as much as the next investor. But in my time I’ve just seen too many crashed stocks go all the way to the wall. So these days, I prefer to hold off until I see what there is at the end of the tunnel. Light’s not so good if it’s the light of an oncoming train.
That means I want to see the risk receding and see actual evidence of profitability. I’ll miss the lowest price like that, for sure. But I don’t care about that, I care more about reducing my risk. For me, that takes the Aston Martin share price off the table right now.
The company is not expected to make a profit any time soon. Forecasts suggest pre-tax losses of hundreds of millions this year and next. The firm had £359m in cash on its books at 30 June, after its big equity issue. But net debt stood at £751m. I can’t see Aston Martin making it to profit without needing to raise more cash first.
Aston Martin has gone bust seven times in its history. I see a very real chance of an eighth, and I don’t want to be left holding any worthless shares if it happens.
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Alan Oscroft 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.