It’s been more than four years since I last took a good look at Aston Martin (LSE: AML) shares, way back in February 2019.
At the time, its stock traded at £11.50, having plunged from £19 at its IPO four months earlier. I described it as “a brave buy for contrarians”.
I wasn’t brave enough to buy it myself, and I’m glad I didn’t, because that was only the start of the great Aston Martin share price collapse. Six months ago, the FTSE 250 luxury car maker’s shares traded at just £1.32, a drop of 93%. They’re down 12.1% over the last 12 months.
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War in Ukraine, supply chain issues and Chinese lockdowns have done their work. Last summer, Aston Martin’s embattled management was forced into £653m equity capital raise to pay down debt and boost its balance sheet. Yet broker Jefferies still warned it faced capitalisation risks.
A rocky road
In November, Aston Martin revealed yet more bad news, as pre-tax losses over nine months accelerated from £188.6m to £511.3m, amid delivery shortfalls. Shares rallied after Canadian billionaire Lawrence Stroll upped his stake, while May finally delivered some good news.
Q1 losses narrowed from £111.6m to £74.2m, boosted by strong growth in deliveries of its sports utility vehicle DBX. Revenue rose 27% to £295.9m, with volumes and selling prices up too.
Any investor bright enough to have bought bombed-out Aston Martin shares for £1.32 six months ago will be feeling pleased with themselves.
If I’d invested £5,000 (my personal maximum for any individual stock), I’d have picked up 3,788 shares. Today, with the share price at £2.30, they’d be worth £8,712, up 75% in six months.
That’s just fun and games. I didn’t pump £5,000 into Aston Martin shares six months ago, so the big question is whether I should invest today.
Still a brave buy
I hate arriving at parties late, and that definitely applies to share purchases. Aston Martin is likely to be back on many investors’ radars right now, which should instantly set alarm bells ringing. The real excitement may already be over.
Yet there are positive signs. Its highly praised DBS 770 Ultimate special edition is a sell out with prices start at £314,000. The hand-built Valkyrie sells for between $3m and $4m. Buyers who can afford that aren’t going to worry about the cost-of-living crisis. The margins must be huge too, although total production is low (capped at 499 for the DBS 770 and just 150 for Valkyrie).
Aston Martin now expects to deliver “significant” growth in profitability, driven by rising volumes and gross margins. It should even generate positive free cash flow in the second half of the year.
I’m still wary of another false dawn. All those rights issues leave scars. Management can’t afford any more slip-ups. The stock is hard to value as it still makes a loss, trading at a P/E of -2.
Bizarrely, my conclusion is similar to last time. Aston Martin shares are still a brave buy and, sadly, I’m still not that brave. However, it’s no longer just for contrarians. The recovery has already begun.
