What can we say about Aston Martin (LSE:AML)? Well, I didn’t expect to say the AML share price is up 50% in a month. And since a low in May, it has almost trebled. The stuff that growth stock dreams are made of? Well, not quite.
Aston Martin floated on the stock market in September 2018 with high hopes. Prestige brands frequently perform well in world markets. And British and European brands are often in demand around Asia. Just think of the likes of Burberry, and the LVMH stable of top brands.
Aston Martin share price slide
But the story quickly turned to one of disappointment. As soon as the market opened on launch day, the Aston Martin share price started to slide. And we’ve seen a pretty steady downwards trend ever since. The company that had previously gone bust seven times over the course of its history looked set to make it an octet.
But since a rescue deal was put together in the summer, things look like they’ve started to recover. Before I get excited about November’s surge, though, I need to remind myself that the shares have still fallen more than 50% in 2020. And they’re down 85% since flotation. Still, I do think there’s potential for further rises, at least in the short term.
The shape of Aston Martin now
The 2020 financial bailout and restructuring has, it seems, pulled the firm back from the brink. And that lay behind the Aston Martin share price pickup earlier in the year.
The company has pared back its ambitions, which now appear closer to the reality of market demand. But it does pin its hopes on the success of its SUV, which is something of a departure for the company. Can you imagine James Bond saying “…and it’s great for taking the family camping at the weekend“?
The balance sheet
While there are big uncertainties surrounding the luxury car market, I’m more wary of Aston Martin’s financial position. The company’s debt situation looks alarming to me, and it’s an ongoing thing. It’s still losing money, and is still taking on more debt. On top of that, shareholders have been heavily diluted by new share placings. Will Aston Martin need yet more cash before it gets to profitability? I’d put that at odds-on. And if it happens, it will surely put further pressure on the AML share price.
Seeing investors prepared to stump up for the firm’s debt offerings is perhaps encouraging. There seems to be enough appetite for new share placings too. And I think that will help keep the upbeat sentiment going.
Where next for the AML share price?
I can actually see the Aston Martin share price faring reasonably well in the short term. But I think it’s all down to a new wave of growth stock optimism. Any imminent collapse has been halted, there’s new management, and the new leaner company has a revamped business model.
But optimism doesn’t pay the bills. And unless there’s firm progress towards profit, I can see that wearing off. No, I’m steering well clear of Aston Martin.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.