If current trends continue, the Aston Martin company may shortly start to turn a profit. Is the share price decline offering a deal, then?
The share price of Aston Martin (LSE: AML) has fallen by nearly 19% since last week.
That appears to be a significant shift, even in a weak market. So, does the dip present investors with a purchasing opportunity?
To begin, let us consider the decrease in context. The luxury racing car manufacturer’s stock price is about 26% lower now than it was a year ago, hovering around 242p.
Investors, however, were pleased with the full-year results update this month. And after its publication, the stock rose by nearly 50%. The price has therefore been volatile.
It is crucial to keep in mind, though, that the company is presently losing money. For this year and next year, experts with the City, however, forecast smaller losses. Additionally, the company’s yearly income has increased.
Profits ahead for Aston Martin
If those patterns persist, the company might start to turn a profit in the future. However, there is a sizable amount of debt listed on the balance statement. Furthermore, interest on borrowings could become an issue if there are no earnings.
As a result, it is not optimal that the company has cyclical traits. And any upcoming extended general economic decline could be problematic for the business.
The full-year report released this month revealed rising losses year over year for 2022. But the fourth quarter saw excellent results. Additionally, revenue increased as a result of strong demand across the company’s range of product categories, according to the directors.
For 2023, about 80% of the current lineup of GT/sports vehicles have already been sold out. Additionally, the company managed to survive the disruption to the supply network that the economy experienced last year.
In comparison to 2022, the business said it anticipates a significant increase in profitability in 2023. And doing so entails cutting costs.
Because of an anticipated increase in debt to £900 million by the end of this year, Jefferies has reduced its output forecast for the sports car manufacturer for 2023 by 5% to just over 7,000 units, which is still up 9% from 6,412 units last year.
Aston Martin announced full-year sales of £1.38 billion for 2022 on March 1, up 26% from 2021. This is partially attributable to the variety of models, but it also emphasizes the premium brand’s strong pricing position. It can raise prices for its wealthy clients while still increasing revenue.
Aston Martin sold 2,352 cars in the fourth quarter of 2022, up 22% from the same period the previous year (1,928 cars), which contributed to a 46% rise in sales to £524 million. This is good news for the business and its investors, and it also shows confidence in its plan to eventually sell 10,000 wholesale cars, even though it discreetly dropped the 2024–25 deadline that had previously been attached to that goal.
Aston Martin is still aiming to reach an adjusted EBITDA of £500 million by that time, or about £2 billion in sales.
Consistent brand power
The directors stated that the better situation will be driven by increased volumes and higher gross margins in core and special vehicles. The zenith in capital spending is anticipated for 2023. And the second part of the year should see positive free cash flow.
In the meantime, it is challenging to value a company in the absence of earnings. However, at the present level of about 2.3, the price-to-book value is not outlandish.
But gains might materialize in the future. And if everything works out for the business, it might happen quickly.
The brand’s health is crucial to future success. And we think the business will keep expanding as long as people find the vehicles to be distinctive.
The recent stock weakness may therefore present a buying chance. But before purchasing any shares in a loss-making operation like this, careful investigation is imperative.
To stay with a company for the long run, investors must become more convinced of its potential. However, we believe the encouraging outcomes report for this month justifies a closer examination.
Also read: How To Buy Shares