Sleek, costly and a pleasurable ride. That’s a description of the cars made by Aston Martin (LSE: AML). But it does not really describe the Aston Martin share price, which has tumbled 77% over the past year.
What is behind this fall – and does it present a buying opportunity for my portfolio?
Great brand, troubled business
The company has a lot going for it. Aston Martin is a storied brand with a heritage stretching back across many decades. Petrolheads around the world appreciate Aston Martin as a maker of fine luxury cars and that is reflected in their selling price.
But a good brand and strong customer demand is not always enough for a successful business. The state of a company’s finances also matters. This is where Aston Martin starts to look less appealing to me as an investor. Although it has the makings of a good business, it has run up a lot of debt over recent years.
It has been trying to find ways to improve sales and reduce its debt. The latest move was the recent issue of new shares. When a company does that, it can be good for its balance sheet as it brings in more cash that can be used to pay creditors. However, the move negatively affects existing shareholders. By issuing new shares, the stake of the company represented by every existing share goes down. So even if the company does well in future, the financial benefit for each share will be less.
Aston Martin has massively diluted shareholders in the past few years. Even after the latest fundraise, I think it may need to shore up its balance sheet again in future so I see an ongoing risk of further shareholder dilution. That could further hurt the Aston Martin share price.
Hard road ahead
I am also not convinced that the company is on track to meet its aggressive business goals.
It has had multiple chief executives over the past few years. Wholesale volumes in the first half fell by 8% compared to the prior year period, although revenue growth of 9% suggests that the firm’s efforts to focus on premium pricing are paying off. Pre-tax losses soared to £285m.
The company claimed it is on track to meet its medium-term targets. Those include wholesale volumes of around 10,000 cars annually by 2024-25. Last year’s wholesale volumes were 6,178. With a declining sales volume trend in the first half of this year, is it realistic to expect that a luxury carmaker can improve volumes by more than 60% of last year’s total to meet its 2024-25 target?
That seems ambitious to me even without the backdrop of an economic downturn. I do not see reasons to feel confident about success when looking at Aston Martin’s recent sales performance.
Should I act on the Aston Martin share price?
I see real potential in some of the company’s assets, from its brand to its loyal customer base.
But the balance sheet is a major problem I expect to keep dragging down the manufacturer’s financial performance. The company has consistently shown it is willing to dilute shareholders. Even after the Aston Martin share price fall, I will not be buying into the company.