What’s the most undervalued stock on the FTSE 250? Well, according to analysts, Aston Martin (LSE:AML) is either it or pretty close, trading at a 60% discount to the average share price target.
These share price targets aren’t gospel, and analysts can make mistakes. Nonetheless, this is most definitively a very positive sign for investors looking to snap up a cheap stock and generate some very sizeable returns.
And with the company set to return to profit in 2026, it really could be the bargain of the decade.
An incomplete turnaround
Aston Martin isn’t there yet, but the turnaround is in progress. In 2023, Aston Martin narrowed its losses and saw a 19% increase in revenue, driven by strong demand for its special, limited edition vehicles, and for its SUV — the DBX.
However, on the face of it, Aston appears to have hit a speed bump in 2024. The Gaydon-based company has reported falling revenue and wholesale volumes dropped 26% in the first quarter to 945.
Management says this reflects factory downtime, with the strategy focusing on expanding the product lineup, particularly in the ultra-luxury segment, and improving operational efficiency. All eyes, therefore, are on the H2 and 2025 performance.
F1 goals
The automotive business is complemented by Executive Chairman Lawrence Stroll’s ownership of the Aston Martin Formula One team. F1 is a sport on the rise — sadly, for traditionalists like me — and it has taking the Aston brand to new audiences around the world.
On Tuesday 10 September, the team signed Adrian Newey, widely regarded as Formula One’s most successful designer, in a major coup for Aston Martin.
In short, a successful F1 team could be good for vehicle sales and it’s certainly positive for sentiment.
The prospects
Stroll has described the current period as a transition. So the important questions is… where will Aston Martin be in two years?
Well, according to the forecasts, it will be back in the black with earnings per share (EPS) of 8.6p. In turn, this suggests a forward price-to-earnings (P/E) ratio of 17.6 times.
Let’s break that down. Firstly, some investors might not want to wait two years for a company that will trade at a premium to the FTSE 100.
However, the trajectory suggests that earnings will grow further and quickly from that point. On a forward P/E basis alone, it could be a rather cheap-looking stock by the end of the decade.
The issue with the P/E ratio and the company, of course, is debt. With over £1bn of debt, management really needs the business to hit deliveries and margin targets. Compounding things is the need to raise more money for the electrification programme — that won’t be cheap.
The vision
However, Stroll doesn’t want to build a company that trades in line with the average index P/E. Everyone familiar with Aston knows that Ferrari — the only other listed supercar maker — trades at 53.3 times forward earnings.
That’s because Ferrari has incredible brand value, massive gross margins, and a strong order book. Aston could have all of these things, and it’s well on the way in some aspects.
Both these companies also serve incredibly resilient parts of the market. There are 630,000 ultra-rich people worldwide, and that figure is growing annually.
