Lately, it has been more exciting to drive an Aston Martin (LSE: AML) car than to own its shares. Over the past 12 months, the Aston Martin share price has collapsed 83%. The stock has performed disastrously since the firm listed just four years ago, losing 97% of its value.
Growing trade interest
But that has not scared away all potential investors. In fact, some of them have been piling into the company in a big way.
Aston Martin announced a capital raise of £654m last month. Investors include Saudi Arabia’s sovereign wealth fund, which now holds an 18.7% stake in the carmaker, and Mercedes Benz. Shareholders also now include Chinese auto firm Geely. It announced a 7.6% stake in Aston Martin last week.
Considering my move
So, very deep-pocketed and sophisticated investors are investing tens of millions of pounds while the Aston Martin share price is in pennies. Should I do the same?
I do not think so. The reason highlights an important distinction when it comes to small private shareholders as compared to other types of investor.
Strategic versus financial investing
Mercedes and Geely are what we call trade buyers.
They may well have a strategic interest in owning part or all of Aston Martin, to improve their own competitive position. In the Summer, Aston Martin talked about enjoying “a long-term strategic relationship with Mercedes Benz, evidenced by their further investment in the company and our planned deployment of their technologies”.
Geely has been sniffing around Aston Martin for years. It previously offered to inject over £1bn into the company. The Chinese firm manufactures London taxis and owns a majority stake in UK luxury carmaker Lotus.
Both firms may see commercial benefits to increasing their ownership stake in Aston Martin or trying to take it over altogether. For such a strategic buyer, financial considerations can be a low priority. They may not mind what happens to the Aston Martin share price after their purchase, because their aim is a strategic not financial benefit.
Risks and opportunities
I do not see the same rationale for the Saudi stake, though.
A big chunk of Aston Martin may be a trophy asset. But is that enough to justify investing in a business that continues to haemorrhage money? The iconic brand and expanding range of models could make Aston Martin an attractive investment over the long term. But I see sizeable risks, such as further shareholder dilution due to the company’s debt-heavy balance sheet.
Still, maybe the Saudi fund is taking a purely financial approach and reckons the Aston Martin share price is a bargain. Perhaps they hope to benefit financially from unloading their stake at a profit to any future bidder.
The Aston Martin share price does not tempt me
However, the Saudi sovereign wealth fund is in a very different position to me as a private investor.
It has enormous funds at its disposal and a plethora of expert advisers. A stake of nearly 19% makes it a key shareholder, which could mean influencing strategy at board level.
None of that applies to me. I also lack the strategic interests of trade buyers like Geely. Aston Martin has been an out and out disaster so far for small private shareholders. I have no interest in joining their number.