I am considering adding Aston Martin (LSE: AML) shares to my portfolio. While the company might not be suitable for all investors, I believe it may fit my value investing style well. However, I’m wary that the business may not live up to expectations. Therefore, as an investment, I would only ever consider a modest position.
Nevertheless, there are a couple of reasons why I believe the business may be able to reverse its poor performance over the past few years.
Weighing up the Aston Martin share price
There are a couple of qualities that I look for in every investment. These are a strong brand and an experienced management team.
Aston Martin certainly has the former. The company owns one of the most coveted luxury car brands globally. In 2018, the brand was estimated as being the seventh most valuable brand in the UK.
When it comes to management, Aston Martin has a mixed track record. However, its new management team is made up of a former Mercedes executive and Canadian billionaire, Lawrence Stroll, who earned a great deal of his fortune turning around luxury brands. There’s no guarantee he will be able to do the same with the luxury carmaker, but Stroll has an impressive CV nevertheless.
The fact that the company has both of the qualities outlined above has piqued my interest in the Aston Martin share price. Still, the group does have some drawbacks. For example, I’m not particularly eager to invest in businesses loaded with debt.
The carmaker has a lot of expensive debt. Last year it raised a total of $1.1bn at an interest rate of 10.5%. In comparison, blue-chip Royal Dutch Shell issued debt last year with an interest rate of less than 2.4%. This tells me that Aston had to offer investors a lot to get them to hand over the cash. The group also issued nearly £250m of shares last year to raise even more money.
Aston Martin believed that by raising so much money last year, the organisation wouldn’t need to tap the market again. That may be true. The group may have borrowed enough to put its issues behind it. Just because the company has struggled in the past, does not mean that it will again in the future.
However, I think the business has an uphill struggle ahead of it. Too much debt can be hugely problematic for a business, and I’ve made many mistakes in the past buying into highly indebted firms. As such, I plan to continue watching the Aston Martin share price closely over the next few months to see if its turn around begins to gain traction. If the green shoots of growth begin to show, it could be an extremely positive sign, although a turnaround is not guaranteed.
Rupert Hargreaves 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.