Luxury car maker Aston Martin Lagonda‘s (LSE: AML) share price has doubled in the past year. I believe new management and improving financial results have helped the strong movement in the share price.
I would like to further analyse the company to understand if this is a buying opportunity for me.
Here’s why I think Aston Martin’s share price will rise
The company released its first-quarter results last week. Revenue grew by 153% year-on-year to £224.4m. These results look good, but during the first quarter last year, Covid-19 disruptions had a negative impact on the company’s revenues. To have a better comparable, I checked the company’s first-quarter 2019 revenue. It was £196m and reassured me of the growth of the company.
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The company benefitted from strong demand for its first sports utility vehicle, the DBX. It accounted for 55% of wholesale units. Strong demand from China, and less need for incentives as the inventory levels decreased, helped the company to achieve an increase in its average selling price. This is of interest to me since I believe China is an important car market at the moment.
Aston Martin was able to reduce its pre-tax losses from £110.1m to £42.2m. Also, the adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) came to £21m, compared to a loss of £38m for the same period last year. This was mainly due to fewer incentives, strong demand for the DBX and the cost reduction initiative by the management. It also reported a positive cash flow of £24m.
Aston Martin’s transformation plan, called ‘Project Horizon’, is progressing well. The company was able rebalance the supply of its GT/Sport cars to demand earlier than originally planned. The company is also reducing costs by consolidating all sports manufacturing in one location. It is also able to achieve initial manufacturing efficiencies in its plants, which is good.
High debt is a concern for the Aston Martin’s share price
The company’s net debt has been reduced to £722.9m from £726.7m in the fourth quarter of 2020. However, the debt to equity ratio is high in my opinion. Currently, the company has a debt to equity ratio of 1.70.
The company’s success will depend on the quick recovery of the global economy. If there is a slowdown due to the increasing Covid-19 cases it will put pressure on the company’s results.
The much-awaited Valkyrie hypercar and new derivatives of the DBX are expected to be launched this year. I will be keenly watching the launch of these vehicles. In my opinion, Aston Martin’s share price will depend on the success of these new cars in the coming months.
Final view
The Aston Martin’s shares have been performing well in the past year. I believe that due to the good results and improving cash position Aston Martin’s share price might continue to rise. So, I would consider buying the shares in the coming months.
