After several years of giving the company a wide berth, I turned positive on the Aston Martin (LSE: AML) share price in the middle of last year.
While the company is still losing money, I’m encouraged by its new management team. Decisions to buy back all excess cars from dealers, reinforce the balance sheet with new equity, and launch new vehicles seemed to be the right ones.
And so far, the market has responded positively to the company’s turnaround. Over the past year, the Aston Martin share price has increased in value by around 53%.
As it pushes ahead with its turnaround programme, I think the stock could have further to go.
Aston Martin share price outlook
When I look at Aston, I think the company could become the next Ferrari when it comes to profitability and sales growth. Its brand might not be worth as much as the Italian supercar maker, but it remains one of the most valuable brands in the UK. It’s also one of the most valuable supercar brands in the world.
I think this gives the company strong foundations from which to grow in the years ahead.
That’s not to say it’s going to be easy for the group from here. Aston needs to continue to produce cars people want to buy. That means it needs to invest in research and development. For a company that has so much debt and has lost so much money in the past, this could be a problem.
It also faces fierce competition from other carmakers, which are constantly fighting for market share.
The scale of the business’s challenges are evident in the City’s projections for group earnings in the next few years. Even though analysts expect sales to increase by more than 20% from 2019 levels by 2022, the group is still anticipated to lose £131m, which is £5m more than the loss reported for 2019. These figures alone make it clear to me that the Aston Martin share price faces a challenging future.
Of course, these are just projections at this stage. The company is not guaranteed to hit these projections. Nevertheless, I think they show the scale of the challenge facing the enterprise.
Significant challenges
While the company has a tremendous opportunity in front of it, I think it also faces some significant challenges in the years ahead. As such, I believe this is a multi-year turnaround story. It could be three to five years before the organisation’s growth initiatives start to yield results. In the meantime, the Aston Martin share price may encounter volatility.
However, I’m optimistic that the business can overcome its challenges over the long term, especially with its new management team, which has so much experience in the luxury goods industry, overseeing things.
And with that being the case, I would buy the stock for my portfolio today. Due to the risks facing the enterprise, I would limit the investment to a relatively small amount of my portfolio. This would help limit risk while maximising upside potential if everything goes right for the company over the next three to five years.
