Although I’m no petrolhead (indeed, I rarely ever drive), I’ve long been an admirer of Aston Martin‘s luxury cars. Perhaps it’s the association with the late Sean Connery as James Bond, but I’ve always regarded Aston Martin as a leading aspirational brand. In late 2018, Aston Martin Lagonda Global Holdings (LSE: AML) floated on the London Stock Exchange, giving the public an opportunity to invest in this iconic company. What has happened since to the Aston Martin share price has been a brutally painful lesson for investors.
The Aston Martin share price crash
When the luxury carmaker returned to the stock market in October 2018, it priced its shares at £19 apiece. This valued the 107-year-old brand at a tidy £4.3bn. This was a very rich valuation, given that AML made only £87m pre-tax profit in 2017 and a £163m loss in 2016. Also, the company was being floated by private-equity owners, who load up businesses with debt so as to extract maximum value. As a result, the Aston Martin share price headed south almost as swiftly as its supercars accelerate from 0-60mph.
By the end of 2019, just 14 months after its IPO (initial public offering), the Aston Martin share price had crashed to 167.64p. That’s a collapse of more than nine-tenths (91.2%) from the float price. Then a ‘white knight’ investor rode to AML’s rescue. Canadian billionaire and Racing Point F1 Team owner Lawrence Stoll and others agreed to pay £182m to buy a quarter of Aston Martin.
Covid-19 wrecks Aston Martin
Of course, the global Covid-19 pandemic did untold damage to AML’s business model. First-quarter sales plunged, with revenues crashing by three-fifths (60%) and pre-tax losses leaping to almost £119m. With net debt nearing £1bn, Stoll’s cash injection (plus an emergency rights issue of new shares) boosted AML’s balance sheet by £536m in cash. And yet the Aston Martin share price kept stalling. By 14 May, the price had imploded again, reaching a record low of 27.5p before recovering to close at 30.7p.
Then the share price made a comeback, rising high to exceed 80p in early June. Next, it dropped back again, falling to 46p and then zigzagging along before hitting 73p in early August. By 24 September, it had dipped down all the way back down to 46p again. But it made yet another comeback, closing at 80.05p on Wednesday. This may have been a ‘dead cat’ bounce, because the price promptly dived 9.2p (11.5%) by Friday’s close.
I’d steer well clear of this stock
When I look at Aston Martin today, I see beautiful vehicles made by a struggling, perennially loss-making business. Even before Covid-19, Aston Martin struggled to be profitable from one year to the next. The group first went bankrupt in 1925 — just 12 years after its creation — and has been bankrupt seven times in total. And, in a warning for shareholders, Aston Martin’s latest $1.1bn junk bond carried a ‘danger zone’ yearly coupon of 10.5%. Finally, AML faces a painful transition to a low-carbon world with fewer fossil-fuelled cars. That’s why I would steer well clear of Aston Martin shares today. For me, any investment in AML stock would be driven by hope, rather than reality!
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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