The Aston Martin (LSE:AML) share price has been on a downward trajectory ever since its IPO in 2018. Even before the pandemic hit, the business was haemorrhaging cash and reporting increasing losses with each passing year.
But recently, its share price has begun recovering. Is Aston Martin finally on track to becoming a great business? And should I be adding it to my portfolio? Let’s take a look.
A new chapter for Aston Martin
In early 2020, the company received a £500m rescue package from Canadian billionaire Lawrence Stroll, who now sits as executive chairman. The company is undergoing substantial restructuring under his guidance. And so far, things appear to be going well given the Aston Martin share price is up almost 75% since September last year.
As part of this restructuring plan, Tobias Moers was appointed as the new CEO. He has over 25 years of experience within the automotive industry and had been chairman and CEO of Mercedes since 2013.
The company is switching its strategy. It’s bringing new vehicle development in-house while using Mercedes as a key producer and supplier of bespoke engine parts. I think it’s fair to say that Tobias’s existing relationship with Mercedes certainly helped form this new partnership.
The company also launched a brand new model – the Aston Martin DBX – which has a lofty price tag of £158,000. Despite the premium cost, the car appears to be very popular, with more than 1,200 sold in the last quarter of 2020.
Why did the Aston Martin share price rise?
The business recently released its final results for last year, and at first glance, they were pretty dreadful. Net losses increased by nearly four times to £466m. The number of cars sold to dealerships and wholesalers dropped by 32% and 42%, respectively. And to top it all off, £98m of R&D technology was written off as part of its new strategy.
Needless to say, this does not exactly indicate a thriving business. So why did the share price go up?
While the overall results were poor, some promising trends emerged. Thanks to the new DBX model’s popularity, total revenue actually increased by 3%, even though the total number of cars sold dropped by around a third.
Subsequently, management has forecast that 6,000 cars will be sold in 2021. Half of which will be the new DBX model. This is actually 20% lower than the previous year. But the premium-price of the DBX means that if the company hits this target, it will become profitable again for the first time in five years.
The bottom line
The preliminary results of the new strategy indicate to me that Aston Martin is heading in the right direction. But there are still many challenges ahead. The most prominent of which is its level of debt. The firm has over £1.1bn of loans to repay. And so, even if the firm achieves profitability, it may take some time for the balance sheet to become healthy again.
That means it could take time for the share price to fully recover, even if it rises further this year.
Therefore, I won’t be adding Aston Martin to my portfolio today, but I’ll definitely be keeping an eye on how it performs over the next few quarters.
