When I think of Aston Martin (LSE:AML), I think of James Bond and all the swagger that comes along with the famous movie franchise. The luxury sports manufacturer’s investment prospects haven’t filled me with the same delight, however. The company has recently been taken over, and the share price rallied in the last month. At such a low price point and given the takeover is it worth investing in right now?
Aston Martin share price woes
AML floated on the stock market in September 2018 to much fanfare. There is a general consensus that prestigious brands tend to fare well across world markets. British luxury brands have a history of doing well in Asia where demand is high. The shares were priced at £19 in the initial public offering (IPO). The opening day was a sign of things to come as the price began to decline and has dwindled badly since.
Since the floatation, the Aston Martin share price is down approximately 95%, which is staggering. Right now I can buy shares for just 80p per share. Things were even worse prior to the Covid-19 vaccine news and this latest rally. I could buy shares for less than 50p. This wasn’t as bad as May when AML’s share price reached a lowly 30p.
What is happening at AML?
It would be easy to point fingers towards the global pandemic and the market crash for AML’s fortunes. Unfortunately there are much deeper rooted issues and have been for some time. Let’s not forget that AML has gone bankrupt SEVEN times in the past.
It seems that AML was not selling as many cars as expected by management. It could be argued that sales and growth targets were overly optimistic. AML has a history of huge financial losses, which made its balance sheet a difficult read. Cash generation is poor and debt levels continue to rise which is worrying as a potential investor. There was even an accounting error last year which inaccurately boosted profitability. This was eventually corrected. First-half figures for 2020 showed losses of £227m.
A rescue deal was put together this past summer and this could mean the start of a potential recovery in my opinion. The deal consisted of a financial bailout and major restructuring. This as well as the vaccine will have contributed to the rise in the Aston Martin share price, in my opinion. Along with new management, there seems to be a refined business model, realistic ambitions and a leaner organisation. I believe this will benefit AML in the longer term.
What I’m doing now
With investor sentiment increasing generally and AML’s most recent bailout I do see the Aston Martin share price faring better in the shorter term. But does that mean I am willing to invest my hard-earned money? The short answer is no.
With its history, financial mismanagement, in the past and current alarming debt situation I am not willing to invest my money in Aston Martin shares. There is too much risk involved for my liking. If I wanted less risk with a better prospect of making money, I would buy this stock instead.
Jabran Khan 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.