Image source: Aston Martin
Aston Martin (LSE:AML) shares have fallen 22% over the past week. This figure is considerably higher than the average losses experienced by global stocks over the past few days.
But the recent losses are just the tip of the iceberg. The luxury carmaker has fallen 72% in the past 12 months and 97% in the past three years.
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So at the current 515p share price, could I double my money with Aston Martin shares?
Long-term valuation issues
Aston Martin looks like an attractive company. It’s one of the coolest car brands on the planet and has an iconic, famous name linked to the James Bond franchise.
However, the band took on a lot of debt to expand. Net debt reached £957 million in the first quarter. This debt, and its repayments, are likely to impact the group’s profitability in the years to come.
In addition, Aston Martin made losses on several occasions. The Gaydon-based business recently recorded a small loss of £42.2million in the first quarter.
The pandemic has certainly not been good for the group and its growth plans. Nor is the current environment particularly conducive to luxury car sales.
A very bad week
Aston Martin shares have lost around 22% of their value in the past five days.
Global markets were spooked by higher-than-expected inflation in the United States and the possibility of the Fed raising rates by 75 basis points this week.
This situation was aggravated by poor economic forecasts for the United Kingdom and Germany.
But the reintroduction of the strict Covid-19 restriction in China has had an impact on Aston Martin. The most populous nation in the world is an important market for the British brand.
double my money
Could I double my money with Aston Martin shares? Well, if Aston Martin is starting to move towards meeting executive chairman Lawrence Stroll’s goals, I think so.
In 2021, Aston Martin shipped 6,600 cars. But by 2024/25, Stroll hopes to increase that number to 10,000 cars a year. In turn, the chairman wants to reach £2bn in revenue and £500m in adjusted EBITDA by 2024/25.
The big question is to update these objectives.
The shares are currently valued at 515p. Reaching a share of 1,030 pa requires considerable revenue growth and the ability to start reducing debt.
Turnover for 2021 was just over £1 billion. Stroll’s company therefore has four years to double its revenue and achieve its goal.
Revenue increased 4% year-over-year in the first quarter. But this growth rate will not be enough to double revenues.
Aston currently has a price to sales ratio of 0.6. Although this seems very low, it reflects the high level of indebtedness of the group.
However, profitability and revenue are very different. I don’t think we need £500m EBITDA to double the share price.
If pre-tax profits were to reach £50m, the group would have a fair P/E ratio of 12 at today’s prices. Sounds doable to me, but I’ll be watching closely.
I would actually buy more Aston Martins at this price, but I understand there is a lot of risk involved.
The group has a new CEO — former Ferrari boss Amedeo Felisa. The Italian manufacturer displays huge margins. Aston could learn a lot from him.