Luxury carmaker Aston Martin (LSE: AML) is not known for being cheap. But while its fast cars may set you back a pretty penny, the Aston Martin share price is considerably more affordable. Its trajectory has not been pretty, with the business losing 74% of its value in the past year alone.
Given the knockdown price, could now be a good time to start buying a few Aston Martin shares for my portfolio? I reckon the answer is a firm ‘no’.
Thinking about how to invest
Before diving into the specific details of Aston Martin, I remind myself how I try to invest more generally. I am looking for great businesses in which I can purchase a small stake at what I think is an attractive price.
Aston Martin is a great brand. But that does not mean it is a great business. In fact, right now, it looks like a pretty bad business to me. It is saddled with net debt, standing at £833m at the end of September.
It is making a loss – over half a billion pounds before tax in the first nine months of this year. The company is also making a loss at the operating level, meaning that even when not considering expenses such as interest payments, the underlying business is losing money. To help shore up liquidity, the company has diluted shareholdings and I see a risk this could happen again.
None of this attracts me as an investor.
A bull case for Aston Martin
However, sophisticated investors such as Saudi Arabia’s sovereign wealth fund have been pouring money into Aston Martin. Am I being unduly pessimistic?
The company has a plan to increase sales volumes. If that works, it could help improve profitability and perhaps turn the loss to a profit, at least at the operating level. There are lots of fixed costs in running a car factory, so the more vehicles those can be spread over, the more attractive the economics of the business ought to be.
The share price doesn’t tempt me
But while there may be some grounds for optimism about the company’s outlook, I continue to be concerned about its debt burden and heavy losses. Neither am I convinced that management can deliver on its plan to grow sales volumes strongly. Wholesale volumes in the first nine months of this year actually fell compared to the same period last year.
So I will not be investing any money in the carmaker.
The current share price could turn out to be a bargain if the business starts making a profit and reduces debt. But that may not happen. The shares have lost over 96% of their value since the company’s 2018 flotation. However, they could still sink even lower.
This post was originally published on Motley Fool
