As a general rule of thumb, the stock market tends to offer long-term positive returns. The longer the time period you look at, the more likely it is that the trend has been higher. However, this isn’t always the case for individual shares. In fact, this FTSE 250 stock is down 96% over the past five years. Down 57% over just the past year, I took a look to see if it’s time for me to snap it up.
The wrong strategy
I’m referring to Aston Martin Lagonda (LSE:AML). I wrote about the stock back in July when the half-year results came out. Even though the stock rallied 11% on the day of writing (24 July), I didn’t think that it would materialise into a sustained rally. This turned out to be correct, with the stock down 4% over the past month.
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One reason why I struggle to see a large rally is because of weak demand. Revenue fell by 11% in H1 versus the same period last year. It’s true that the average selling price of the cars is rising. For example, the average price for H1 was £274k, up 29% from the H1 2023 figure of £212k. Yet this also flags up the problem. The company is selling fewer cars but at a higher price. If it keeps pushing up the price, I think demand will fall even further as even wealthy might look around for a less pricey luxury alternative.
From my perspective, I’d rather the firm offered a cheaper entry level car model, which could then be marketed to more people. This could help to fuel sales and boost revenue going forward. Yet there doesn’t appear to be any sign of this. Instead, the firm is focusing on releasing new special edition models. These are going to be even more expensive, so I don’t see this solving the problem at all.
I think the share price will keep moving lower until the business can pivot to a strategy that works.
Why it could be a bargain
Yet there’s still a case to be made for the stock becoming a bargain. Even though the business is loss-making, it has recently secured more financing. This means that there’s very little probability of the firm going bust any time soon. With access to cash, it has the opportunity to focus on growing. Therefore, this does limit some of the risk associated with me buying it now as a value play.
Another angle is the difference between the market cap and the enterprise value. The market cap is £1.19bn, whereas the enterprise value is much higher at £2.36bn. The latter reflects an alternative way of valuing the company, based on equity, debt, cash and other elements. To me, the difference is too large, indicating that the market cap is potentially too low. The key way for the market cap to increase to a ‘fairer’ level would be for the share price to increase.
Not for me
Despite the above factors, I’m still not convinced that Aston Martin is anywhere near the biggest bargain in the FTSE 250. I’m going to pass right now and search for better options elsewhere.
