Could there be light at the end of the tunnel for Aston Martin’s share price?
Image source: Aston Martin
It’s been an awful few years Aston Martin (LSE: AML) shareholders. Shares of the luxury car maker have fallen 94% over the past five years. But they rose nearly 4% in early trading today (April 29) as the market digested the latest set of numbers from the company.
Could this signal the beginning of a turnaround in the fortunes of the hard-earned company?
Some signs of progress
Let’s start with the positives in the latest quarterly statement.
Aston Martin has kept its vision for the whole year “while keeping in mind the macroeconomic and geopolitical background“.
That may sound too good, but given the company’s history of disappointing shareholders and the current uncertainty of the global economy, I see it as good. That said, the caveat gives the company some wiggle room if business slows down over time.
The other side of the good news is that what the company calls its core retail volumes for the quarter were well ahead of retail volumes.
Reducing the amount of money tied up in cars sitting in dealerships would help the company’s financial breathing room, which is especially welcome given its £1.5bn debt.
Gross profit was also ahead of the same quarter last year, at 34.7% this time, compared to 27.9% in the same period.
This was partly due to the strengthening of the delivery of Valhalla a big car. More than that Valhalla expected sales, the mix of products sold may well reflect the company’s profitability.
Long road ahead
However, the benefit is not available. Operating losses have been reduced significantly, but are still recorded as losses and not profits.
I see monetization at the operating level as an important first step in fixing Aston Martin’s financial health, as the company has many non-operating expenses on top of that. The latest quarter shows that. The operating loss was £8.9m, but the company’s pre-tax loss was much larger, at £65.5m.
But again, that’s better than the same number in last year’s quarter, still great.
Paying off corporate debt – much of it at high interest rates – is expensive. It includes interest charges of £150m this year.
Meanwhile, the macroeconomic and geopolitical backdrop is the company’s biggest ongoing risk. It could hurt demand, add costs like taxes or cause delays in a company’s supply chain. None of this would be good for profit.
I have no desire to invest right now
With its strong brand, well-heeled customer base and proven technical prowess, the business has as much potential as a business.
But it has been unable to make a profit at the operational level. Even if it can do that at some point, managing its idle costs is still a big challenge.
The company has repeatedly tried to improve its balance sheet by issuing new shares, cleaning up existing shareholders. That is always dangerous.
The overall risks are too great for me. If Aston Martin can continue to improve its financial performance and not let City down again, the share price could rise significantly from here.
For now, however, since it has not proven to be profitable on a continuing basis, I have no plans to invest.
