Down 18% in days! Should I sell this luxury brand in my Stocks and Shares ISA?
Ferrari (NYSE:RACE) is a holding that has done well in my Stocks and Shares ISA over the past few years. However, on Thursday 9 October, it crashed 15% — the stock’s worst trading day ever!
Should I now sell? Let’s discuss.
Investor update
The culprit for the sell-off was the luxury carmaker’s Capital Markets Day event. In this, management set out its guidance for 2030.
By then, it expects net revenue of â¬9bn and at least â¬2.75bn in operating profit (30%+ margin). That will be up from this year’s â¬7.1bn and â¬2.06bn (29%), respectively.
Growth is expected to come from a richer product mix, limited-edition models, and higher personalisation revenue, supported by steady racing and lifestyle income.
Ferrari plans to launch an average of four new cars per year. And it’s on track to start deliveries of its first full-electric model (Elettrica) by the end of 2026. This EV will have a range of more than 530km (329 miles).
Looking ahead, the company plans to return â¬7bn to shareholders between 2026 and 2030. This includes â¬3.5bn in dividends (with the payout ratio raised from 35% to 40%), and â¬3.5 bn in share buybacks, beginning 2026.
So what’s the problem?
There appear to be three issues here. Firstly, Ferrari was originally aiming for 40% of total sales to be EVs by 2030. Now, it has cut that to 20% due to lacklustre demand for electric sportscars among the super-rich.
Second, the financial guidance for 2030 was weaker than expected. Wall Street was collectively anticipating more like â¬9.8bn in revenue, with higher profits. Ferrari is normally very predictable, so this will have spooked investors.
Finally, the stock was very highly valued prior to this dip, at around 40 times forward earnings. So it was priced for perfection, and this guidance wasn’t perfect. Therefore, the sell-off makes sense.
Will I sell?
In my opinion, Ferrari’s biggest challenge/risk remains the EV transition. It reportedly plans to sell EVs at higher price points. The Elettrica is expected to cost at least â¬500,000 before personalisation, according to Reuters. Presumably, this is why the 2030 figures are lower than expected (it will now sell fewer EVs).
Stepping back, I’m not too worried. In fact, I’m glad the EV strategy has been modified. Customers likely pay up to hear the engine’s full-throated roar, not the “unique characteristics of the electric powertrain“.
Meanwhile, demand still far outstrips supply, with the order book stretching well into 2027. This underpins pricing power. Active clients now total 90,000 (20% higher than 2022).
This incredible quote from the firm sums up the brand’s longevity (and scarcity): “Since the companyâs founding, Ferrari has produced approximately 330,000 vehicles, over 90% of which are still in existence today and require our constant care.”
Nowadays, all Ferraris are uniquely personalised. Leaning into this, it will open two ‘Tailor Made’ centres in Tokyo and Los Angeles in 2027.
It’s also worth mentioning that Ferrari has achieved its previous profitability targets for 2026 one year in advance. I strongly suspect this will happen again by 2030. Guidance looks conservative.
For these reasons, I’m not selling. Indeed, with the stock now trading at 33 times 2026’s forecast earnings — versus the 10-year average of about 40 — it might be worth considering.
If it keeps falling, I’ll invest more money.
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Ben McPoland has positions in Ferrari. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
