The last year has been a total nightmare for the Aston Martin Lagonda (LSE: AML) share price.
The luxury carmaker has lost an incredible 90% in value in 2022 alone. And more pain could be around the corner as the global economy teeters on the brink of recession.
So should I avoid Aston Martin shares like the plague? Or is now the time for me to fill my boots?
‘Business as usual’
Some consider the troubles over at Aston Martin as being ‘business as usual’. In its 109-year history, the business has declared bankruptcy half a dozen or so times. And in 2020, it came close to being wiped out again before billionaire businessman Lawrence Stroll stepped in to save it.
Ambition is written into the company’s DNA. And it has big plans, from being a huge player in the luxury SUV market to embracing the green future of motoring. It plans to fully electrify its ranges by 2030 by offering the option of plug-in hybrid or all-electric powertrains to drivers.
The problem is that Aston Martin has a long way to get there. Sales fell off a cliff during the 2020 pandemic. More recently it’s been hampered by supply chain issues that have smacked motor production and driven up costs.
The carmaker saw pre-tax losses widen to £285.4m in the first half of 2022 versus £90.7m a year earlier. And while it claimed to enjoy “strong demand across product lines”, parts shortages and logistics issues have hit its ability to capitalise. Wholesale volumes dropped 8% year on year to 2,676 cars.
Rights issue
Unfortunately, things threaten to get worse before they get better, too. As we saw during the height of Covid-19, demand for sports cars could slump again as economic conditions deteriorate.
This is a terrifying prospect given the huge debts that Aston Martin has accrued. Net debt stood at an eye-watering £1.27bn as of June.
On 5 September the company announced another rights issue to the tune of £576.1m. It said the funds would be used to pay down debt and help it develop its electric vehicle programme. There’s a high chance that this could prove just a sticking plaster, however.
On the bright side
The good news for Aston Martin is that the outlook for the luxury and sports car markets remains super exciting. If the company can get it right then it could be on the road to generating shareholder riches.
Porsche’s upcoming IPO on 29 September illustrates the huge commercial potential of the fast luxury car market. The German manufacturer is valued at €75bn in what would be the fifth-largest IPO in Europe.
Analysts at Statista believe the global sports car market will be worth $66.8bn by 2026. That’s up 10% from 2022’s expected levels. And James Bond’s favourite carmaker has the brand recognition to make the most of this landscape.
The problem for Aston Martin, though, is that ongoing trading troubles and a weak balance sheet means it might not be there to reap the benefits. I love the company’s products. But I wont touch its shares with a barge pole.