I’ve written articles this week singing the praises of stocks that have shot out of the blocks in 2021. This has been for different reasons, with some stocks gaining on strong trading results, others from more external factors. Unfortunately, this can’t be said of the Aston Martin Lagonda (LSE:AML) share price so far. It’s down over 10% this week as investors mull short-term and long-term news. Sitting at levels around 1,600p, at what point does the stock become an undervalued bargain?
Another 10% down
A good friend of mine invested over a year ago into the stock, and has called me to moan about another double-digit fall in the Aston Martin share price on several occasions. In terms of the move this week, it seems to be due to the broader concerns about the UK economy. Aston Martin is seen as a poster child of British industry. The news this week that UK GDP shrank by 2.6% month-on-month in November likely means a double-dip recession. Add onto this other news about teething problems regarding trade with the EU post-Brexit, and it’s easy to see why the share price took a hit.
This adds to the longer-term uncertainty following the investment by billionaire Lawrence Stroll. Following him taking a 16.7% stake in the business, he became CEO and issued an aggressive outlook. In the Q3 trading update, the management team said it was targeting £2bn of revenue and £500m of profit by 2024/25. This was a big disconnect from the accompanying results for the quarter, with revenues of £124m and a loss of £29m. Talk is cheap, and so far there doesn’t seem to be any meaningful shift in stance from management to encourage buyers. In my opinion, this pessimism is clearly seen in the continual grind lower of the Aston Martin share price.
Is the Aston Martin share price undervalued?
Yet with the share price at 1,600p, it’s starting to look attractive. One common way I try to find a clear value is the difference between the market capitalisation versus the enterprise value. The Aston Martin market cap sits at £1.83bn, with the enterprise value higher at £2.39bn. The enterprise value is an alternative measure of the worth of a company. It takes into account the net asset value along with other elements that add value. So from this, you could argue that investors are overly bearish and the current Aston Martin share price reflects a value that’s too low.
This share price is derived from the company having 114.9m shares in total. When trying to pin a fair price on the business, I can use the enterprise value instead. Using this figure, divided by the shares outstanding, gives a theoretical share price of 2,079p. For me, that’s a more accurate level of where the shares should trade at.
From that angle, Aston Martin seems probably worth buying. But currently, my gut feeling doesn’t agree, and sometimes that happens even when the numbers stack up. I feel the sentiment driving the shares lower has still got legs, especially with the state of the UK economy. I might be a buyer at some point, but not right now.
jonathansmith1 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.