Aston Martin (LSE: AML) shares have not had a great experience of the stock market. When the luxury sports vehicle manufacturer first launched its IPO, there were concerns that the price was too high. This has continued to hobble Aston Martin stock, even as the luxury goods market continues to weather the coronavirus crisis.
It is difficult to decide whether to treat Aston Martin as a motoring stock, in which case its poor share price performance looks more natural as part of the malaise affecting the auto sector overall, or as a luxury goods play, in which case it is doing badly.
Aston Martin: a luxury goods play?
We like the luxury goods market at The Armchair Trader, and have made good calls on both the short and long side of Burberry, for example. But much of that has been powered by dynamics in the important East Asia luxury retail space. Aston Martin does not depend, or profit, as much in China or Japan, although it does have 18 dealers in China.
Aston Martin is now under new leadership, with Lawrence Stroll as executive chairman, and has had a £536 million equity fund raising earlier this year. The company has re-started production at its factory in Wales and seems confident that it can start delivering cars to customers over the course of the summer. It also has a good order book going into 2021.
However, we don’t think the Chinese market is going to be enough to boost Aston Martin sales sufficiently to make this look like an attractive prospect. Its dealership network will gradually come online in the course of the year, and yes, it will start selling more cars. But it is going to be selling them into the economic morass that has been created with the coronavirus. Even China is not immune to this.
Intelligence gathered by The Armchair Trader clearly indicates that even wealthy buyers will hesitate to come up with the sums required for a new Aston Martin under the current circumstances. It is a very different proposition to a new Louis Vuitton handbag.
Aston Martin stock down over 90% since listing
This stock is now down over 90% since the IPO. The company it still carrying too much debt and if there is one thing we are allergic to here at The Armchair Trader, it is too much debt. We think 2020 is going to be a struggle for Aston Martin stock.
Aston Martin shares are currently trading between 30p and 40p. Broker Peel Hunt had its price target in at 30p, although the market seems to be comfortably pricing at around 37-38p. This stock has simply been priced too aggressively at the IPO stage, many people bought into it then because they loved the brand and subsequently took a bath.
It remains an historic and sought after brand, and there will always be room in many millionaires’ garages for an Aston Martin, but we don’t see this as a value play as there are still too many financial problems within the company that need to be sorted out. Maybe next year?
Data sourced from SharePad. The UK’s no.1 investment data & analysis software for Private Investors as voted for by FT/Investors Chronicle readers. Discover the advantage at www.sharescope.co.uk/sharepad.