The Aston Martin (LSE:AML) share price has achieved impressive performance recently. After years of underachieving, the stock is finally on an upward trajectory. In fact, it’s up by just over 70% in the last 12 months. While it’s far from returning to its 2018 IPO price, this recent recovery is an encouraging sign.
So, what’s behind it? And should I be adding this business to my portfolio today? Let’s take a look.
The recovering Aston Martin share price
Aston Martin’s recovering share price is something I’ve discussed before. As a reminder, back in 2020, the business was on its knees until Canadian billionaire Lawrence Stroll threw £500m in its direction. The investment seems to have been sound given the direction the stock is now heading in. Since then, the business has undergone a major structural overhaul. And it has launched its new, highly popular DBX model. Both of these are likely to be responsible for the firm’s newly invigorated financial outlook.
Last week, Aston Martin published its second-quarter results. And in my opinion, they were rather impressive. Total revenue for the quarter increased a staggering 380%! And more than half of this growth originated from wholesale demand for the DBX model. Given these impressive sales, I’m enthusiastic to see the management team already begin production on the next line of DBX cars next quarter.
The company is still unprofitable. But losses are getting smaller. Over the past six months, operating losses came in at £35m versus £159.3m last year. I’m not surprised to see the Aston Martin share price on the rise with results like these. But it’s not out of the woods yet.
There are still some hurdles to overcome
Part of Aston Martin’s elevated share price is based on the 6,000-car sales target for 2021. So far, the business has achieved 2,901 sales since the start of the financial year. That does mean it’s slightly behind and will need to make up the difference in later quarters. Suppose it fails to meet this target? In that case, the stock may see some short-term volatility.
Something else that is causing some concern is the level of debt. As it stands, Aston Martin has nearly £1.3bn of debt on its books. And where there is debt, there are interest payments. However, being an unprofitable business means that the management team has to burn through its cash reserves to cover these expenses. As it stands, the company has £505.6m at its disposal. This certainly gives it some breathing room. But suppose profits don’t return in the near future? In that case, it may be forced to do another round of fundraising by either borrowing more or offering new shares. Either result is bad news for shareholders and would likely slow Aston Martin’s share price recovery.
The bottom line
This latest earnings report continues to show signs that the worst may be over for this business. And it suggests that the new strategy being employed by the management team is starting to bear fruit. But the debt levels do concern me given its lack of positive cash flow. Therefore, I’m still keeping Aston Martin on my watchlist for now.
