Watching a car made by Aston Martin Lagonda (LSE: AML) tear around hairpin bends on a race track can be exciting — but sometimes alarming. That matches the experience of some shareholders of the firm. The Aston Martin share price has had its share of crashes and acceleration in recent years.
So can the Aston Martin share price recover this year and would I buy it?
Aston Martin share price performance
Before looking forward, it is a worth a glance in the rear view mirror.
In the past year, the Aston Martin share price has tripled. An increase of 212% is certainly impressive. But that doesn’t take the share price back to where it was previously. The shares are still trading at more than 80% down on their 2018 listing price. So even after revving up lately, the shares are still a long way from where they began.
Positive drivers for the share price
This month Aston Martin released its first-quarter results. They contained some positive signs for the company, in my view.
Sales were up sharply from the same period last year, when the pandemic was starting to impact car demand. Wholesale volumes leapt 134%.
The top-selling car was the company’s sports utility vehicle, the DBX. That has been a large part of the company’s recovery plan. It even built a new factory specifically to produce it. So the sale of 746 units in the quarter looked like good news.
Additionally, the company managed to improve its performance on the profits front and actually reported £20.7m of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).
But the company’s debt pile means interest is a big expense. I prefer to look at the pre-tax loss, which stood at £42.2m. That was still significant. But it was smaller than the £110.1m loss it booked in the same quarter last year.
Future plans
The company’s management has set out aggressive plans to return it to financial health. These include around 10,000 wholesale sales per year. The annual revenue target is about £2bn, generating roughly £500m of adjusted EBITDA.
In its announcement, the company expressed its current confidence in its ability to hit these targets. That’s a strong statement of intent. This year, for example, it expects to sell around 6,000 units.
Aston Martin share price risks – and my next move
Investing in Aston Martin shares has been a bumpy ride where the environment can change rapidly.
I think positive news like the company has just released will help the momentum of its shares even more this year. The Aston Martin share price is already less than 5% away from the £20 level I thought it could hit this year.
But I continue to be wary of the risks. The debt pile generates a significant interest bill. This year alone, interest payments will eat up £125m of cash. The debt risks eating substantially into free cash flow.
The company has also been willing to dilute shareholders considerably to help raise more funds. With its future still looking challenging, I see this as an ongoing risk. Any dilution would reduce the stake in the company each share represents.
For those reasons, I continue to avoid Aston Martin shares.
