The Aston Martin Lagonda (LSE:AML) share price continues to race higher. It soared following the release of encouraging full-year financials in midweek business. And it has posted more gains on Thursday — the luxury carmaker is currently 6% higher on the day.
At 220p per share, Aston Martin shares are trading at eight-month highs. But can James Bond’s favourite carmaker continue its recent recovery? And should I buy the business for my investment portfolio today?
Financially stronger
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To recap, on Wednesday the company announced a 26% improvement in revenues in 2022. At £1.38bn, sales were propelled by a strong end to the year as fourth-quarter turnover leapt 46%.
On the negative side, pre-tax losses surged to £495m last year from £213.8m in 2021. This was caused by higher-than-normal cost inflation and heavy investment in brand, marketing, and product launches.
But on the whole this latest update has given Aston Martin’s beleaguered investors more to cheer than pick holes in. The firm ended 2022 with a cash balance of £583.3m, up more than £164m year on year thanks to capital raised from Saudi Arabia’s sovereign fund last autumn.
Worries over Aston’s financial position have long dogged the company. So news that net debt also dropped, to £765.5m from £891.6m, provided further cause for celebration.
Sound strategy
No-one has ever doubted the exceptional brand power of Aston Martin’s vehicles. What’s been going on under the hood of the premium motor maker is what has concerned investors.
Wednesday’s update, then, has boosted hopes that the business is finally on the mend. Encouragingly, there are clues that management’s decision to double-down on the ‘ultra-luxury’ end of the market is also paying off handsomely.
The firm says that 80% of its GT/Sports range is sold out for 2023. It sold 6,412 vehicles last year and expects wholesale volumes to improve to around 7,000 this year.
Spending among high net worth consumers remains largely unaffected by economic downturns. In fact their appetite remains strong during these periods even when prices of their favourite goods are hiked. Aston Martin’s improved gross margins last year (which rose 2 percentage points to 33% on the back of improved pricing) is evidence of this.
Here’s what I’m doing now
I love a good recovery play. And I’ll be keeping my eye on Aston Martin. But for the time being I’m not happy to invest in the carmaker just yet.
Analyst Sophie Lund-Yates of Hargreaves Lansdown has summed up my view on the carmaker in a nutshell. She comments that “Aston Martin has a revered product offering but there are plenty of financial plugs that need filling. Until that happens further capital raises can’t be entirely ruled out, despite the £654m equity capital raise undertaken last year.”
There have been a number of false dawns at the business in recent years. Yet share placings have remained a constant headache for its shareholders in that time. Significant cash burn remains a threat and the business still has a lot of debt on its books.
Supply chain issues and high inflation remain a problem. And the business has to compete hard in a crowded market to hit its sales targets. On balance, I believe Aston Martin shares still carry too much investment risk.
