I have the Aston Martin Lagonda (LSE:AML) share price ticker on one of my watchlists. This allows me to keep an eye on movements. Over the past year, it has been moving lower. In fact, it’s down 75%. With more headaches arising over the summer, it’s clear that the business isn’t doing great. But at 176p, am I crazy for thinking that we’re approaching a value opportunity with Aston Martin shares?
The bad and the ugly
Over the course of the past six months, the share price has almost halved. Several events have contributed to this move lower.
The half-year results showed an increase in the size of the loss before tax from £90.7m last year to £285.4m this year. Even though this was down to one-off adjustments due to FX movements and depreciation charges, it all counts.
Another cause for concern for some investors has been the plan regarding a rights issue. This involves issuing new shares at a discount in order to raise funds. It’s an alternative way to generating cash instead of relying on debt financing. However, regardless of how it’s spun, the bottom line is that Aston Martin still needs to raise money. It’s estimated this rights issue will generate a chunky £575.8m. Were the company profitable, it wouldn’t have this problem and could use retained profits to pay down debt and help to boost growth instead.
Finally, news broke in recent weeks regarding a legal dispute between Aston Martin and former dealers. This relates to the financing and deposits of cars. Whatever the outcome, it’s a messy look for a publicly listed company.
Finding value in Aston Martin shares
Despite all the bad news hitting the share price, I think that it has reached a point where the business looks undervalued.
For example, the market capitalisation of the company is just £671m at the moment. Its H1 turnover was £541m. Granted, Aston Martin is losing money, but I think it highlights that if the business can get control of costs, the revenue is there to flip and make a profit. If the net profit margin is even a reasonable percentage of revenue over a full year, the price-to-earnings ratio at the current share price would make the stock look incredibly cheap.
Further, I think some of the above events in recent months have been viewed too negatively. It’s easy when the share price is in a spiral lower to view things in a negative light. For example, even though the H1 results showed a loss, there were many positives to take away. GT and sports cars models are fully sold out into 2023, with the SUV model orders up 40% year on year.
Even with the rights issue, the fact that cash is being raised that can pay off some interest-bearing debt can be seen as a good thing. It’ll help to reduce debt repayment and interest costs, lowering long-term costs.
I’m seriously considering now to be a good time to buy a small amount of Aston Martin shares. The business has gone bust before, so I’m only going to invest what I can afford to lose. But if I’m right, the long-term return could be large.