£210. That’s what I reckon I’d have today, if I’d bought £5,000 of Aston Martin Lagonda Global Holdings (LSE: AML) shares in the firm’s 2018 IPO.
Of course, my numbers would be better if I’d taken part in this year’s rights issue, when the firm sold £365m of new shares at 30p each. Aston Martin’s share price has since risen to 79p, providing a healthy 160% profit for lucky investors who bought at the bottom.
Aston Martin shares: time to buy?
The group now has new management and has a £500m cash pile to help it survive the pandemic. I’ve avoided AML stock so far, but I’m wondering if it’s time to take a more positive view on this business.
After all, I admire Aston Martin’s cars and the impressive heritage of its brand. I think that ex-Mercedes AMG boss Tobias Moers is a good fit for CEO. I’m also more optimistic about the future of the business. Aston has several new models in the pipeline for the coming years. The firm has also successfully launched its DBX SUV this summer.
Looking ahead, Aston’s expanded technical partnership with Mercedes should also help on the engineering front, providing access to class-leading engines and other tech.
In terms of marketing, chairman and F1 team owner Lawrence Stroll aims to make Aston Martin a bigger luxury brand, like Ferrari. I think he has the passion and connections needed to be successful.
Aston’s sales are expected to rebound strongly in 2021, as the pandemic eases and sales of new models grow. If the global economy stabilises and Asian demand picks up, a strong recovery could be on the cards.
What could possibly go wrong?
I don’t want to be a bore about this, but as a potential buyer of Aston Martin shares, I have one big worry. Debt.
In my view, Aston Martin has far too much debt. Although the firm has raised a lot of cash by selling new shares this year, this money is mostly being held back to keep the company afloat until sales improve.
Aston’s latest trading update showed net debt of £869m at the end of September. That’s not much lower than the £988m reported at the end of 2019, despite the company raising £813m of cash by selling new shares this year.
Make no mistake — Aston Martin is still burning through cash. The company isn’t expected to become profitable until 2022 at the earliest. In the meantime, shareholders face the risk that they’ll be asked to provide yet more cash to stave off bankruptcy.
Aston Martin shares: will I buy?
I’m sure that the Aston Martin brand and business will survive. But I think the outlook for the firm’s shares is far more uncertain.
In my experience, the easiest way to avoid big losses in the stock market is to steer clear of companies with too much debt. That’s doubly true if they’re also losing money, like Aston Martin.
For these reasons, I won’t be adding AML shares to my portfolio. I think there are much better growth opportunities elsewhere.