Aston Martin (LSE: AML) recently told investors that its sports cars are “sold out into 2023”. But its share price doesn’t seem to have got the message. The shares have fallen by 75% in 12 months. They look more like an old banger to me than something James Bond might drive.
However, poor performance in the past doesn’t mean Aston Martin can’t recover. I like the brand and I think that chairman and 22% shareholder Lawrence Stroll is doing all the right things.
With Aston stock trading close to record lows, I’ve been taking a closer look. Should I pick up a few shares as a turnaround play?
One risk I don’t like
Aston Martin’s share price has dropped nearly 20% since 28 June. The market seems to have been spooked by media reports that the company might be looking to raise money.
The company’s response to these claims was to comment that its order books have strengthened this year. Sports cars are said to be sold out into 2023, while orders for the DBX SUV are 40% higher than at this time last year.
However, management didn’t deny claims that it might be seeking to raise more cash. Instead, it simply said the company routinely keeps its funding options under review.
Aston Martin reported a quarterly loss of £112m and net debt of nearly £1bn at the end of March. So the company’s non-denial doesn’t fill me with confidence.
Although I understand that all investing carries some doubts, I try to avoid too much debt risk in my portfolio. As an equity investor, I know that I could face big losses if I own shares in a company that runs out of cash.
Here’s the good news
It’s not all bad news. Aston Martin says its performance so far in 2022 is in line with its previous guidance. The number of cars sold this year is expected to rise by 8% to at least 6,600.
Broker forecasts also suggest the company’s EBITDA measure of profit (which excludes interest, depreciation and tax) will rise by 50% to around £220m.
Aston Martin is targeting annual sales of 10,000 and EBITDA of £500m by 2024/25. If the company can hit this goal, I think the shares might offer some value at current levels — despite the group’s heavy debt burden.
Aston Martin shares: my decision
One big change since May is that the firm has got a new chief executive and a new chief technical officer. Both men are former Ferrari employees. New CEO Amedeo Felisa spent 25 years at the famed Italian firm including eight as CEO. Chief technical officer Roberto Fedeli is credited as the creator the Ferrari LaFerrari — the marque’s first hybrid supercar.
I reckon this experienced pairing should have the skills and experience needed to help develop the next generation of Aston Martin models. This will include its first electric car, which is due in 2025.
However, although I’m optimistic about Aston Martin’s future, I’m just not comfortable investing in a company with high debt levels and ongoing losses. For me, this situation is just a little too risky.