Thank goodness I didn’t invest anything in Aston Martin shares at IPO
Would £10,000 invested in Aston Martin (LSE: AML) shares at its IPO have been a good investment? In a word: no. Any money invested in the name behind James Bond’s most famous cars would have been, to put it frankly, a disaster.
The stock was listed on the London Stock Exchange in 2018 at a share price of £19. The initial valuation of £4.33bn placed it within spitting distance of the FTSE 100. The excitement of the return of one of Britain’s most beloved car brands to a public listing made it one of the biggest IPOs of the year.
A steep decline followed. The company was plagued with problems. The shares now trade for pennies. The 64p share price is 2% off its previous high. A £10,000 stake bought at IPO is now worth £158.
Just what on earth happened here?
What happened?
Well, it’s not down to the number of cars sold. While there’s some difference between product lines â the company’s first-ever SUV (the Aston Martin DBX) proving something of a hit, especially in China â the firm has been selling in the region of 6,000 cars a year consistently. Revenues are in the billions too.
The problem is: it isn’t making any money. Net operating margins came in at -18% in the last financial year. The firm hasn’t posted a profit since IPO. The last year’s ‘black hole’ was to the tune of £323m.
Several years without earnings has meant a growing debt pile. The £1.4bn net debt is now over double the firm’s equity. These are the kind of numbers that spell trouble. They go some way to explain a share price at a tiny fraction of its IPO value too.
A buy?
So we have a world-famous brand of luxury cars with a share price that has a big ‘98% off’ sticker on it. Not to mention Aston Martin is running a prestige-enhancing Formula 1 team too with Fernando Alonso sitting in the driver’s seat. Could a remarkable turnaround be on the cards? Is this going to be seen as a bargain buy in the years to come?
Much will hinge on the popularity of its upcoming cars. The Aston Martin Vanquish is due for release soon. The company’s first hybrid â a vehicle with both electric and conventional petrol power sources â is ready to start production too. If these cars set the world alight, then it might kickstart a change in fortunes.
Personally, I think there’s a little too much risk here. Perhaps the brightest sliver of hope is the rumour of a Saudi investment fund taking the brand private. That might (or might not) mean shareholders get a premium on the current price. But for me, there are much more attractive long-term investments that interest me at the moment.
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John Fieldsend has no position in any of the shares mentioned. 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.
