After the stock market crash of March, enough time has passed for the dust to settle. This enables us to look at a company and decide whether the crash (caused by the pandemic) has hurt a business for the long term, or is something it has rebounded from. For Aston Martin Lagonda Global Holdings (LSE: AML), the share price slump from March has added to its woes.
After starting the year around 150p, the Aston Martin share price fell down to 46p by the middle of March. In the short term, the stock did trade back above 100p, but unfortunately it’s back at the time of writing to 50p. This represents a fall of 66% from the start of the year.
A tough year
For Aston Martin, it hasn’t just been the pandemic that has hurt the share price. The business was struggling coming into the year, having posted a loss of £38.9m last year. It had already seen falling demand from consumers, and was struggling to control rising debt levels. Without strong profits, its high costs to develop new models needed to be funded via debt.
The pandemic really added to these problems for several reasons. Firstly, with the Aston Martin share price falling, the board decided to raise £152m from new shares. This is harder to achieve as you need a large take-up with a lower share price. Secondly, the factory had to shut, meaning that production ground to a halt. Thirdly, low consumer demand dropped even more for luxury items. This is logical, as rising unemployment and economic uncertainty seldom go hand in hand with a spike in £100,000+ sports car sales.
Is the Aston Martin share price now a bargain?
All of the above meant that half-year results came in well below par. But is too much bad news now priced in to the share price? The current share price reflects a market capitalisation of just over £900m. This has obviously fallen significantly over the past year. But take a look at the enterprise value, which stands at £1.66bn.
The enterprise value is the calculation on how much it would actually take you to buy the company. This includes debt levels and also factors in assets such as inventory and cash. Some view it as a more accurate depiction of the true value of the company. From this angle, the Aston Martin share price is undervalued, given the large difference to the enterprise value.
Aside from number crunching, I can make a case for a share price rally from the new SUV, the DBX. Car enthusiasts are singing the praises of the new car, the first SUV Aston has ever produced. In terms of success, one can mirror it to the launch of the Cayenne SUV from Porsche in 2004. The move boosted profits enormously for the German car manufacturer. So for Aston, appealing to a different (and large) subset of the car market could be the catalyst needed to spark growth.
Ultimately, the Aston Martin share price does look like a bargain at the moment. I would average-in, buying some stock now but leaving some powder dry for a future second investment.
jonathansmith1 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.