The Aston Martin Lagonda (LSE: AML) share price led the FTSE 250 on Monday, up 10.8% at market close.
The luxury car maker has just inked a deal with Lucid Group of the US to help it build electric vehicles (EVs). Lucid is going to get $232m in Aston Martin shares and cash, and will supply “select powertrain components” for EV development.
The fact that Lucid wants AML shares seems positive to me. I mean, the 97% share price fall since flotation back in 2019 doesn’t exactly make this look like a screaming growth prospect.
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Pandemic pain
One thing does make that sound worse, though, and that’s the pandemic. That, plus the soaring inflation that’s followed, has hit worldwide demand for… well, almost everything. And luxury cars are not at the top of many people’s priority shopping lists.
But the shares were already sliding before the virus made its appearance.
I’m always reminded, too, that Aston Martin has previously gone bust no fewer than seven times in its illustrious history. I don’t want to own any shares if there’s an eighth.
Still, developments since late 2022 do look encouraging.
Mercedes too
On the same day as the Lucid tie-up, Aston Martin announced an extension to its co-operation deal with Mercedes-Benz. In exchange for more shares, Mercedes-Benz will provide further technology to Aston Martin.
So, we’re seeing progress, and the share price has had a good ride so far in 2023. But is this a growth stock to buy now?
Part of me thinks yes. We really could be looking at a sustainable second wind for the company now, as we often see after early growth IPO flops.
Valuation is still a bit tricky, as there’s no profit forecast for the next couple of years.
Decent valuation
But based on 2023 forecasts, we’re looking at a price-to-sales ratio (PSR) of about 1.6. And I’d say that’s actually pretty good at this stage in the company’s progress.
Revenue in Q1 rose by 27%, as the company is launching its next generation of sports cars. It says demand is high, with 95% of its current range already sold out for 2023.
City pundits think Aston Martin could even turn cash flow positive in 2025. That could mark a major milestone in the quest for long-term profit and growth.
So yes, I think AML shares could finally be set for a decent period of growth. Will I buy? No.
Better options
That’s mainly because I reckon this is a much better time to buy undervalued income shares on big dividend yields. I see lots of those with strong defensive moats and bags of safety in their share prices.
I just don’t need to take the risk of buying growth shares at a time like this, particularly ones relying on upmarket brands. It doesn’t take much for things to go wrong with such niche products.
Still, I’ll be watching and cheering the shares on. And I do think this could end up being a turnaround year.
