On several occasions over the past few years I’ve taken a look at the Aston Martin (LSE: AML) share price. However, I’ve never pulled the trigger on this investment. There are a couple of reasons why I’ve stayed away. The group’s weak balance sheet and lack of profitability are the two most prominent.
But it looks to me as if the firm is finally starting to turn the corner. With that being the case, I’m considering buying the stock once again.
Aston Martin share price performance
It isn’t easy to get excited about the company’s prospects based on its share price performance this year. The stock has lost around 90% of its value year-to-date. Only the most risk-tolerant investors would be willing to dive into the business following this show.
Nevertheless, in my opinion, this performance undervalues the company’s progress in 2020. After a near-death experience, Aston Martin has pulled out all the stops over the past 12 months.
A substantial capital raising from new and existing shareholders has fortified the balance sheet. Meanwhile, a new management team, cost-cutting efforts, and a programme to get rid of unnecessary inventory have helped streamline the business.
That being said, despite these efforts, the company isn’t out of the woods just yet. It still isn’t profitable and isn’t expected to be for the next two years.
Nevertheless, I think the business is an entirely different beast today than it was at the beginning of the year. That’s why I’ve been taking a closer look at the Aston Martin share price recently.
What I’m excited about is the company’s growth potential. Aston Martin is one of the world’s most sought-after luxury car makes. The brand alone is worth several billion pounds. Its cars sell for hundreds of thousands of pounds, and one of its latest models, the Valkyrie, will be priced at £2.5m.
Comparing the business to peer Ferrari, it’s clear Aston Martin isn’t living up to its full potential. Shares in the former are up 18% over the past 12 months.
So, I’ve been asking myself where has Aston Martin gone wrong? It seems to me that the firm’s made several significant errors. These include making too many cars, which has stopped the organisation from making the most of its brand exclusivity, and not investing enough. The company’s new management appears to have eliminated these problems. By reducing the total output, Aston Martin has also been able to lower costs.
As such, I think the car producer has put its major problems in the rearview mirror. That’s why I’m now taking a closer look at the Aston Martin share price once again. The business seems to have turned a corner and, if it can manage to replicate even a sliver of Ferrari’s success over the next few years, profits could surge.
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.