Should I buy the stock for my own portfolio? Let’s take a look at the investment case.
Aston Martin’s share price is rising
Aston Martin has had a torrid time since it floated around two years ago. Last year, the luxury car group generated a net loss of £126m. This year, it’s on track to post a net loss of more than £250m. As a result of this poor financial performance, its share price has been crushed.
However, the outlook appears to be improving. In late October, the group told investors it had expanded and enhanced its strategic cooperation agreement with long-term partner, supplier, and shareholder Mercedes-Benz AG.
This deal – which will see Mercedes-Benz become one of Aston Martin’s largest shareholders – will provide access to a range of world-class technologies, including powertrain architecture (for conventional, hybrid, and electric vehicles) for all product launches through to 2027. It will also remove the costs and risks associated with developing these technologies, enabling Aston Martin to focus its investment in other areas and expand its product portfolio.
The board appears to be pretty excited about the deal. “This is a transformational moment for Aston Martin,” commented chairman Lawrence Stroll. “This is truly game-changing,” he added.
On top of this, Aston Martin has developed a new business plan. It’s now targeting revenue of around £2bn and adjusted EBITDA of approximately £500m by 2024/25. This reflects the Mercedes-Benz technology agreement and the delivery of “new, compelling vehicles” to achieve these growth ambitions. The plan will be underpinned by the group’s recent financing which has strengthened the balance sheet and improved liquidity.
Aston Martin shares: should I buy?
The Mercedes-Benz deal certainly looks promising, in my view. Some investors believe it could break the boom-and-bust cycle that Aston Martin has experienced for so long (the company has gone bankrupt seven times).
I’d want to see some evidence of progress before buying the stock, however. This is a company with a very poor track record. In four out of the last five years, it has generated a net loss. And, as mentioned earlier, analysts expect sizeable losses this year and next too.
Meanwhile, Aston Martin has many other ‘low-quality’ attributes that concern me. For example, it has a substantial amount of debt on its balance sheet. At 30 September, net debt was £870m. This is rather worrying, particularly when you consider the company isn’t making any money. Also, the company doesn’t pay a dividend.
I also think Aston Martin has its work cut out to achieve its new business plan. Over the last three years, revenue has averaged £985m. This year, analysts forecast revenue of £652. Achieving a top line of £2bn in just a few years isn’t going to be easy.
Share price upside?
Aston Martin’s market-cap is currently just £1.3bn. If the company can show signs of progress, the share price could rise.
However, given AML’s poor track record, I’m not going to buy the stock. I prefer to invest in high-quality companies with strong track records. All things considered, I think there are better growth stocks to buy right now.
Edward Sheldon owns shares in Hargreaves Lansdown. The Motley Fool UK has recommended Hargreaves Lansdown. 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.