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The Aston Martin share price jumps! Should I buy the stock today?

Image source: Aston Martin

The Aston Martin (LSE: AML) share price has jumped in early deals this morning. At the time of writing, the stock is up nearly 11% on the day.

This rapid increase comes despite the publication of the group’s 2020 results. For the year, losses at the business increased by almost 400%.

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However, it appears the market is looking past this red ink and focusing more on Aston’s potential. In the final quarter of 2020, sales increased by 3% compared to the same period in 2019, thanks to the launch of its new DBX SUV. This could be a sign of things to come. 

Aston Martin share price performance

Today’s performance looks less impressive compared to the stock’s return over the past year when shares in the company lost 6%. That compares to a loss of 3% for the FTSE All-Share Index over the same time frame. 

What’s more, since its IPO in October 2018, the stock has underperformed the FTSE All-Share by around 94%, excluding dividends. 

Since the IPO, the corporation has really struggled to live up to expectations. The group bled red ink, and its balance sheet got weaker and weaker. Including the loss reported today, the company has reported losses of £638m since listing.

Things came to a head last year. The company had to conduct an emergency fundraising and complete a management clear-out. 

The carmaker is now under the leadership of Canadian billionaire Lawrence Stroll who’s presiding over the rescue of the business. Stroll wants to reduce the carmaker’s output and restore the exclusivity of the brand. To that end, the firm wrote off £100m of stock and vanity projects last year.

The number of cars sold in 2020 declined by around a third, which is part of Stroll’s ambition to increase exclusivity, although the group is planning to increase output in 2021. 

Facing challenges 

Only time will tell whether or not the business has moved on from its troubles. As today’s figures show, Aston Martin is still bleeding money, and there’s no guarantee this will end anytime soon.

Stroll has an impressive CV, having turned around luxury brands such as Pierre Cardin and Polo Ralph Lauren. But Aston Martin has always been a struggling enterprise. In its 107 year history, it’s been bankrupt seven times. It narrowly avoided another bankruptcy last year. 

One of the company’s main problems is debt. It has a lot of it. And it’s forking out tens of millions of pounds every year in interest costs. Aston Martin isn’t going to be able to pay its creditors back if it keeps losing money.

Still, Stroll seems confident the corporation has turned a corner. Alongside today’s results, he said he was “extremely pleased with the progress to date despite operating in these most challenging of times.” He also said he was fully committed to the company’s turnaround plan.

As such, I’m cautiously optimistic about the outlook for the Aston Martin share price. However, I wouldn’t buy the stock today. I’d like to see further progress before initiating a position, which means an end to its massive losses. Until that happens, I’m going to stay away. 

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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.

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