Investors who got excited about the listing of luxury car maker Aston Martin Lagonda (LSE: AML) back in October 2018 have been sorely disappointed by the performance of the share price. While the engines might be fine-tuned, the finances seem less silky smooth. A 66% fall in the share price since listing has really hurt any investor who has kept faith with the company to date.
A series of profit warnings
That’s because investors have suffered a never-ending series of profit warnings. A week before its half-year results – back in July – the group revealed annual sales has been revised down to between 6,300 to 6,500 cars from its earlier forecast of 7,100 to 7,300. It also warned that its operating profit margin would nearly halve to 8%.
The July profit warning was followed by an increase in short positions against the company – investors who bet on the share price to fall, as well as downgrades from analysts.
A pivotal 2020
Back in December, it was reported that the carmaker is seeking new financing and is courting investors. This led to concerns over the firm’s finances and fears that current investors could lose out.
The launch of Aston Martin’s luxury SUV – the DBX – is a cornerstone for any recovery. If it doesn’t go as well as planned, then I think the group could really be in trouble. The car is set to cost customers £158,000 and will clearly boost the bottom line if it sells well. But it is entering a very crowded marketplace. Conditions are currently challenging and the carmaker has already downgraded the number of Vantage cars it expects to sell.
New car launches, the need for more money and the necessity to cut debt are all combining to make 2020 a crunch year for the company. If things go to plan, then the share price could rocket, though the risks are big and further failures could hurt shareholders – badly.
A better choice
I prefer the maker of Irn Bru, AG Barr (LSE: BAG). It saw its share price hammered during 2019 with a profit warning in July being the catalyst for the underperformance as the shares crashed on the day of the announcement. A good 2018 made for tough comparisons, not helped by some poor weather in 2019, and there were specific problems with brands such as Rockstar and Rubicon.
AG Barr said at the time it expected sales to drop by 10% and profits by up to 20% versus the prior year and its September interim results reiterated many of the same points about the market and the company’s operations, which didn’t help the share price recover from the summer slump.
But getting a consumer goods company on a P/E of 18 is a compelling proposition. By way of comparison, alcoholic beverage maker Diageo has a P/E of 24. This makes AG Barr appear quite cheap and a better choice for staging a recovery over the course of this year. To me, the shares are tempting at the current price.