Back in 2018, Aston Martin Lagonda (LSE:AML) went public via an initial public offering (IPO). The price at the time was 19,000p. A quick price search will show an investor that the current price is around 225p. Clearly, this is quite a fall over the past five years. Even over the past year, it’s down 36%.
Yet with the Aston Martin share price up 129% over six months and clear momentum with the brand, could this eventually get back to 19,000p?
The case for a long-term move higher
For the stock to ever have a shot at getting back to IPO levels, it’s going to take several years. This isn’t a negative, in fact if anyone told you that it would happen in a matter of months I’d be very concerned!
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To justify this kind of move higher, the business needs to continue to become more diversified. Part of the reason for the jump in recent months is due to the success of the SUV model, the DBX. It accounted for more than 50% of wholesale units in 2022. With future projects including an electric car by 2025 and other initiatives, this broader net should capture a wider range of clients.
Another key point would be to see the Formula 1 partnership continue to flourish. The team has done well so far this season, and the marketing benefits the business. In the annual report, it mentions that more than 60% of clients are new to the brand, something it puts down in part to the F1 connection. In years to come, if the F1 team does well, it could elevate Aston Martin to a better global level, which would naturally trickle down to new customers and higher revenue.
Why it might never happen
Back in 2018, the IPO price assigned a market cap of £4.3bn. Part of this valuation came from the assumption that the company would be able to grow profitability in a sustainable way. This didn’t happen, and the loss of £57.1m in 2018 was actually the smallest loss of any of the years since! To put it into perspective, the loss for 2022 was £527.3m.
So a clear sign for the market cap to even get close to the IPO level would be for the losses to narrow and ideally flip to being a profit. When a company becomes profitable, it’s much easier to assign a value and investors can use metrics such as the price-to-earnings ratio to get a feel for value.
The problem with Aston Martin is that ever since it has gone public, I’ve seen no indication that it can make a net profit. Fundamentally, it’s a non-starter to talk about large share price gains if a business can’t turn a profit.
Balancing everything out
I struggle to see the stock reaching the IPO price even several years down the line, unless it can produce several years of net profit.
However, this doesn’t mean that investors shouldn’t consider buying the stock. In fact, there’s a good chance that the Aston Martin share price continues to move higher over the next year. This is based on the momentum the company has right now and the better-than-expected 2022 results.
