The Aston Martin Lagonda (LSE: AML) share price has been on a steady rise since last week following the news of a large investment in the company from the Saudi Public Investment Fund (PIF).
The stock has posted a far from impressive performance since its IPO back in 2018. And in 2022 alone, its value has been slashed by over £1bn. However, could the jump we’ve seen kickstart its road to recovery? Or should I be steering clear?
Saudi-backed support
It’s no secret that the business has been in a delicate financial state of late. According to its Q1 results, it currently sits on a pile of debt just shy of £1bn. And with the firm struggling to generate cash, it has fallen behind competitors as it lacked the ability to keep up.
But with backing from the PIF, Aston Martin’s fortunes may be about to change. The fund plans to invest over £650m into the business, making it the second largest shareholder, after Yew Tree, through a £78m purchase of shares and a £575m rights issue.
While a large chunk of the investment is being used to eradicate some of the firm’s debt, it will also provide a boost by giving it a “substantial liquidity cushion to underpin and accelerate future capital expenditure.”
Many spectators have been concerned over the firm’s financial health. However, this news seems to have offset this worry as the Aston Martin share price has spiked since last Friday.
What I’m doing
So, does this mean I should be buying Aston Martin shares?
Well, the fact that multiple investors were after a chunk of the firm, including Chinese carmaker Geely, draws me to the business. This may mean these companies see it as cheap right now. This is a positive sign.
The manufacturer is also moving with the times through its development of electric models. The business expects the first of these to be ready by 2025. And it’s currently scouting potential partnerships after holding talks with the likes of Mercedes-Benz.
While this may provide the firm with a much-needed boost, compared to competitors, Aston Martin is far behind. Main rival Porsche already offers multiple electric models, while Ferrari expects full-electric cars to make up 40% of sales by the end of the decade.
What I think could help Aston Martin is its strong brand recognition. There’s no doubt it’s an iconic name. And with this comes a competitive advantage. It expects to sell 10,000 vehicles by 2025, a major increase from the 6,178 it sold last year. This could nudge the share price up.
However, while I see signs of optimism for the stock, I won’t be buying its shares right now. Its heavy debt burden is a turn-off for me. I deem it a too-risky investment. Therefore, I plan to keep it on my watchlist and track its movements in the months ahead.