The Aston Martin (LSE:AML) share price has been extremely volatile in recent weeks. Just in the past week, it’s down around 20%. Is it therefore now a bargain that I shouldn’t miss? I think I need to delve deeper into the company to answer this question, so let’s do just that.
Share price movement and rights issue
It’s not difficult to observe that the share price performance of this luxury car manufacturer has been poor recently. Over the last year, the shares plummeted 80% and currently trade at 142p.
What’s the reason for this? Well, some of the share price movement has been caused by a recent rights issue. The rights issue gave existing shareholders the right to buy four shares for every one they held.
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This was at a price of 103p per share, a 79% discount from their price at the beginning of September. This would mean dilution for any shareholder who didn’t take up the right to buy the additional shares.
The rights issue aimed at raising £575.8m to bolster Aston Martin’s balance sheet. It’s easy to see why this was necessary. It currently has a debt pile of £1.21bn and a cash balance of just £135.81m.
In a challenging economic environment, the company felt it necessary to go to shareholders for additional support. Up to now, the market has interpreted this move negatively.
Recent challenges and results
For the past few years, the business has faced a variety of issues. These include supply chain problems, the war in Ukraine, and an uncertain economic outlook.
All of these are continuing to impact both production and sales and, as a result, are weighing heavily on financial results.
For the six months to 30 June, for instance, the firm reported pre-tax losses of £285m. This widened from just over £90m during the same period in 2021.
What’s more, the number of cars sold came in at 2,676. This was also down compared to last year, when sales stood at 2,901.
These recent results hardly instil confidence in me, as a potential shareholder.
Despite all the doom and gloom, the company does expect an 8% increase in core volumes for the whole of 2022. Furthermore, it forecasts a 50% improvement in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).
Although these expectations could signal a turnaround in Aston Martin’s fortunes, they’re only forecasts. It remains to be seen if the company can achieve these targets.
The bottom line
Overall, I’m alarmed by the recent share price movement. What’s more concerning, though, is the scale of the rights issue and the debt pile this is aimed at reducing. Given the relatively small amount of cash, I’m worried that short-term issues, like supply chain problems, may inflict significant damage on the business.
To that end, I won’t be going anywhere near the shares.
