The Aston Martin Lagonda (LSE:AML) share price was doing what it does best today (27 February) — falling. The FTSE 250 stock is now down 42% in six months, 51% in one year, and 93% since the start of 2020. It’s an ongoing nightmare for shareholders in the luxury carmaker.
Yet the Aston brand remains iconic and the cars still possess the ability to lure eyes from smartphones in the street. We’ve seen how UK brand stocks can bounce back strongly once they hit rock bottom. Shares of Burberry, for example, are up 93% in less than six months.
Does this stock have the potential to produce the mother of all turnarounds? Let’s explore.
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The British Ferrari?
The only other listed supercar maker comparable to Aston Martin is Ferrari. In fact, Aston Martin compared itself to the high-end Italian brand when it went public in 2018, saying it wanted to build a ‘British Ferrari’. It even hired the Prancing Horse’s former CEO, Amedeo Felisa, as its boss in 2022 (he has since left).
Ferrari’s current market cap is $90bn (approximately £71bn), while Aston Martin’s is just £803m. That means an £11,500 investment made today would become £1m if Aston Martin stock went up 8,740% to reach Ferrari’s £71bn market value.
What are the chances of that happening though? Slim to none, I’d say, looking at the latest annual report for 2024. The number of cars sold decreased 9% year on year to 6,030, leading to a 3% drop in revenue (£1.58bn). That was far below the 10,000 vehicles it had originally planned for the year.
The pre-tax loss increased 21% to £289m, while gross margin fell from 39.1% to 36.9%. Meanwhile, net debt widened to £1.16bn from £814m, with net financing expenses 47% higher at £190m. The balance sheet remains my biggest worry here.
The EV is on ice
One positive was that it managed to raise the average vehicle selling price to £245,000. Also, its first plug-in hybrid electric vehicle, Valhalla, is set to launch this year. The product isn’t the problem — it’s making them to sell at a profit that is proving so elusive.
Management is guiding for mid-single-digit percentage wholesale volume growth in 2025. Meanwhile, profitability should improve, partly as a result of a 5% reduction it its workforce. And it expects lower net interest payments of about £145m this year.
However, there’s not too much for shareholders to get excited about. Aston has even delayed plans for its first electric car (EV) till “the latter part of this decade“. That said, this looks sensible to me, as the firm just doesn’t have the financial firepower to manufacture and transition to EVs.
My move
At first glance, the market cap of £803m seems too low for a company like Aston Martin. And a price-to-sales ratio of 0.5 appears cheap.
However, as much as I’d love to see the company succeed, I just can’t bring myself to invest. The balance sheet worries me, as does the revolving door in the C-suite (five CEOs in five years!).
Looking ahead, I don’t see the company remaining public for many more years. I think it will be acquired or taken private. Either way, I’m not interested in buying shares.
