Is the unloved Aston Martin share price about to do a Rolls-Royce?
The Aston Martin (LSE: AML) share price is a wealth destruction machine. The FTSE 250-listed company takes investors’ money, and sets it on fire. It’s destroyed 60% of my stake in 18 months, and I’m one of the lucky ones.
Aston Martin shares listed on the London Stock Exchange in 2018 at £19 a pop. Today, they go for less than 65p, a stunning 97% less, and investors still don’t want to know. But at some point, the agony has to stop. Doesn’t it?
Investing is cyclical. There are times when beaten-down shares recover at speed, making loyal investors rich. Take Rolls-Royce (LSE: RR) for example. The British engineering giant struggled for years until â bam!
Staggering FTSE 100 comeback
For years, everything went wrong. Its Trent 1000 engines suffered from corrosion and cracking, while costs rose and profit warnings multiplied. A bribery scandal cost it £500m. Then the pandemic struck, grounding airline fleets around the world, and wiping out its income from aircraft engine maintenance contracts, which are based on miles flown.
Rolls-Royce made a loss of almost £4bn in 2020, reversing the previous year’s £583m profit. Net debt careered past £4bn. And then, things changed. At speed. They’re up 80% over one year and 1,077% over five.
Rolls-Royce really took off after new CEO Tufan Erginbilbiç publicly shamed it as a “burning platform”, telling staff they were losing money with every investment. That description fits Aston Martin rather nicely. Could it engineer the same kind of turnaround?
The two operate on a different scale. Aston Martin makes luxury cars and boasts a prestige-enhancing Formula 1 team. Rolls-Royce has its fingers in a much wider range of pies, including civil aerospace, power systems and defence, while pioneering other areas such as small modular reactors, better known as mini-nukes. Erginbilgiç reckons they could make Rolls-Royce the UK’s highest-valued company. That will never happen to Aston Martin.
Troubled FTSE 250 stock
But like Rolls, the James Bond car maker been hammered on a host of fronts, with patchy sales, missed delivery targets, tough competition from rival marques and of course the pandemic. Happily there’s no bribery scandal. But it does have £1.4bn of net debt, against a market-cap of £650m, and is basically being kept afloat by Canadian billionaire owner Lawrence Stroll.
Yet it remains a beloved brand, and recent launches have earned good reviews, if not sales. On 29 October, the group posted a Q3 loss of £112m as wholesale volumes took a hit from US tariffs. Much now rests on the upcoming Vanquish model, followed by its first hybrid.
Ultimately, the return of flying lit a fire under Rolls-Royce. A US or Chinese economic recovery could do the same for Aston Martin, I suppose, but I’m not convinced. I have weak moments when I think of topping up my stake, but they soon pass. Aston Marting might still skyrocket, but it’s too risky for most investors to consider. For dreamers or gamblers only.
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Harvey Jones has positions in Aston Martin Lagonda Global Plc and Rolls-Royce Plc. The Motley Fool UK has recommended Rolls-Royce Plc. 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.
