It has been a roller-coaster ride for the Aston Martin Lagonda (LSE: AML) share price. The company has been publicly listed since October 2018 – and the share price has been going down since then. So this is not purely a coronavirus-impacted collapse. And here is why I think its share price could continue to go downhill from here.
The Aston Martin share price could plummet without proven leadership
The departure of CEO Andy Palmer indicates the long-time failing leadership within the company, in my opinion. Even with the incoming CEO Tobias Moers from Mercedes, I don’t see a quick turnaround for a company that is slowly losing its brand appeal. Major shareholder Investindustrial Advisors Ltd also cut its stake in the company by nearly 5% to 14.99%.
On top of the Covid-19 crisis, the company was already suffering from the effect of the US-China trade war, with demand slumping from wealthy Chinese customers in 2019. The global automotive industry has undergone a tough year.
Murky earnings outlook
Aston Martin last month posted a big first-quarter loss after sales dropped by almost a third due to the impact of the coronavirus outbreak. The company has been experiencing a negative net profit in the last two years. With the ongoing impact of coronavirus and no end in sight, I would not bet on a near-term revenue increase, let alone earnings.
Additionally, a healthy balance sheet is more important than ever in this uncertain time. Aston Martin’s debt level has increased by double digits year-over-year, which is very concerning. The cash-strapped company had to raise £536m to increase liquidity to fund its short-term working capital needs. The funding comes from Canadian billionaire Lawrence Stroll, who took a 25% stake in the company. Meanwhile, it is also raising proceeds of £317 million by issuing new shares. This will dilute existing shareholder value, which isn’t exactly great.
My verdict
The stock might look very cheap on the surface to some. But when looking closely at its limited revenue growth with slumping global sales, especially in China, I don’t see the company having a very bright future ahead.
It is clear that Aston Martin had problems before the Covid-19 crisis, and that’s why its share price was hit so hard amid the pandemic-related sell-off. I think it is fair to say car manufacturers like Aston Martin will take a lot longer to recover, if it recovers at all. Therefore, I will stay away from the stock.
