The Motley Fool

Hargreaves Lansdown investors are buying Aston Martin shares. Should I buy too?

Image source: Aston Martin

Aston Martin (LSE: AML) shares are getting a fair bit of attention right now. Last week, AML was the fifth most bought stock on Hargreaves Lansdown.

Should I buy the stock for my own portfolio? Let’s take a look at the investment case.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

Like this one...

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.