FTSE 250 stock Aston Martin Lagonda (LSE:AML)is due to publish its earnings for the second quarter and first half of the year on 24 July.
The iconic car manufacturer’s been one of the most volatile stocks on the index. Over the past 12 months, it’s bounced between 400p a share to around 120p.
This volatility’s a testament to the lack of certainty we have about the future of the company. It’s losing money hand over fist, but it’s an iconic brand with impressive gross margins.
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As such, the market’s always on the lookout for signs that the company’s moving in the right direction. But as the share price highlights, some investors have been losing patience.
What to expect
According to analysts’ forecasts, Aston Martin’s expected to report a loss of 10p a share for Q1, with a range of -11p to -8p, compared to last quarter’s earnings per share (EPS) of -17p.
The company’s only beaten its EPS estimate 25% of the time in the past year, underperforming its industry average of 38.1%.
The sales forecast, according to analysts, is for £281.79m, with a range of £270.1m-£299m. Revenues fell 10% year-on-year in Q1 to £267.7m, following a 26% drop in wholesale volumes.
Hyper-volatile
There are several reasons for Aston Martin stock’s volatility, but it centres on the company’s prospects. Its very existence could potentially be in question.
CEO Lawrence Stroll had set ambitious goals for 2024/25, aiming for £2 billion in revenues and £500 million in adjusted EBITDA with sales of just 10,000 cars (later reduced to 8,000 cars) annually. However, these targets are being pushed back, contributing to stock price fluctuations.
The company’s already heavy debt load creates financial strain and elevates investor risk. However, Aston Martin will likely need additional funding to develop electric vehicles (EVs), adding to financial uncertainty.
Despite positive initial feedback on new products and lean dealer inventories, Q2 deliveries and earnings aren’t expected to be dramatically better than Q1. In turn, this may lead management to draw down on recently expanded credit lines.
While the end goal remains in sight, investor patience is certainly being tested.
The bottom line
What we learn on 24 July about the company’s Q2 performance will likely have a profound impact on the share price. After all, it’s a relatively small company by market-cap these days and its value will be thrown one way or another by increased trading volume.
However, Aston’s also told us it expects the second half of the year to be very different to the first as new vehicles come online and production ramps up. As such, I think expectations are low. If there’s any suggestion the company’s ahead of where we thought it would be, it could roar.
Personally, I hold Aston Martin shares, but it’s one of my most speculative investments. Luxury peer Ferrari trades with very high (50 times) earnings multiples and if Aston does eventually turn a profit, it may also trade with these sizeable multiples, reflecting its brand value and strong margins.
