Aston Martin Stock Analysis

Aston Martin stock has been in decline since its IPO in late 2018. This year has been even worse because of the pandemic as sales fall by more than 45% in the first quarter. Why is Aston Martin going such a bad phase? Because of an identity crisis.

About 25% of Aston Martin was acquired by Lawrence Stroll earlier this year and they sacked their CEO recently and he will be replaced by CEO of Mercedes-AMG Tobia Moers on August 1st. This new developments in the ownership and management of Aston Martin are very important for the future of the business. Before we talk about that, we need to understand its current challenges.

Despite growing revenues from 2016 to 2018, the revenues fell last year. This is something normal since the emerging markets economies were slowing down and car sales in the developed world were going down. But one thing that surprised me is that 24% of the sales came from the UK. Aston Martin has failed to portray itself as an international brand like Ferrari, Lamborghini or Rolls Royce. I mentioned these three brands because Aston Martin has been competing with all three of them and this is the identity crisis of Aston Martin. Ferrari doesn't really compete with Rolls Royce but Aston Martin is trying to compete with both. The average revenues of Rolls Royce and Ferrari per vehicle are above $400k. While, Aston Martin is only at $170k. This is still better than the $70k of BMW (including Rolls Royce) and the $26k of Toyota, but these manufacturers never claimed to be luxury brands.


As far as translating these revenues into profits, Aston Martin is doing an awful job. Ferrari has a gross margin of over 50% since they can sell their vehicles at premium prices. Aston Martin has a gross margin of only 36%. This is still better than most car companies, which has gross margins of about 20%. The auto industry is very competitive and capital intensive. If you can sell cars at premium prices, you should. Again, Ferrari has an operating margin of 24%, while Aston Martin only 9% and they lost money in 2018 and 2016.

Aston Martin portrays itself as a luxury brand but the numbers don't show that at all. That's where the new owner comes into play. Lawrence Stroll is the owner of F1 Team Racing Point. This Team will be rebranded as Aston Martin in 2021. The last time Aston Martin was in Formula One was in 1960. Last year, the best performing revenue segment was Brand and Motorsport but it accounted for less than 3% of the total revenues. The new owner and management would want to expand this revenue segment.

In my opinion, this is a good decision since now they can focus on only one niche but it has its challenges. For example, the payment structure of the Formula One Championship is not very generous to new teams. It is also designed in such a way that Ferrari always makes the most money even if they are last in the Championships. Making F1 cars will also add to capital expenditures. But the revenues could go beyond the cars, for example, through selling of branded merchandise. This will add to its intangible assets.

At the current valuations, Aston Martin is trading around book value but I will need a bigger margin of safety to consider making an investment. It remains on my watchlist.


Read the full analysis on my research partnership: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/17389827

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