Pennies from an all-time low, is the Aston Martin share price poised to rebound?
How can the shares of a luxury carmaker like Aston Martin Lagonda (LSE: AML) sell for pennies? After all, Porsche Automobil Holding has a share price of over â¬36, while US-listed Ferrari shares change hands for $342 apiece. Yet the Aston Martin share price is just a few pennied from its all-time low, at around 61p!
Given how valuable some luxury carmakers can be â and Aston Martinâs legendary brand and deep-pocketed customer base â could the current share price turn out to be a potential bargain for a long-term shareholder like me?
Why a business model matters
It could turn out to be a bargain. But it might also turn out to be like setting money alight.
After all, the Aston Martin share price has already shed 92% in five years.
Sometimes people talk about ‘business models’ and not everyone sees the relevance. Surely if you have people lining up to buy a very expensive item like an Aston Martin, they figure, that must be a good business?
Not necessarily â and this is where the business model matters.
Aston Martin does have real strengths: its marque is unique, storied, and prestigious. But the current business model is simply not working.
In the most recent quarter, for example, its operating loss was £191m. So it actually lost a lot of money from the activity of making and selling cars, even at a high price.
On top of that, the already alarming operating loss is not the only concern. The companyâs cash-hungry business model means it has £1.4bn of net debt.
It costs money just to service that debt, let alone reduce it. Plus there are other non-operating expenses. So taken altogether, Aston Martin lost over a quarter of a billion pounds in its most recent quarter alone. Ouch.
Can the business be fixed?
The past few years have seen the company burn through cash like nobodyâs business. It has repeatedly diluted existing shareholders to raise more funds. I see a risk that could happen again.
So, could anything help the Aston Martin share price gain ground?
To repay the debt without further diluting shareholders I think the fundamental business model needs to be fixed as a first step.
It is possible. The companyâs well-heeled client base could keep splashing the cash even in a tight economy. Selling more vehicles should bring economies of scale. Aston Martinâs brand also gives it pricing power: it has done a good job in recent years of pushing up prices.
But I feel management has a lot to prove. The past few years have seen Aston Martin lose money hand over fist despite having the same advantages I mentioned above.
Until the business model is proven and there is at least some sign of the net debt being meaningfully reduced, I would not touch Aston Martin regardless of its share price.
I do not know if that day may ever come, but it is certainly not here yet.
Meanwhile, there are plenty of other carmakers for me to look at in the market, from Porsche and Ferrari to electric vehicle specialists like Tesla, NIO, and BYD.
The post Pennies from an all-time low, is the Aston Martin share price poised to rebound? appeared first on The Motley Fool UK.
Should you invest £1,000 in Aston Martin right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aston Martin made the list?
More reading
C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.
