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As a general rule, the stock market tends to offer positive returns over the long term. The longer the time period being analyzed, the more likely the trend has been bullish. However, this is not always the case for individual stocks. In fact, this FTSE 250 Index The stock is down 96% over the past five years. It's down 57% in the past year alone. I've been taking a look to see if it's time to buy.
The wrong strategy
I mean Aston Martin Lagonda (LSE:AML). I wrote about the stock in July when the half-year results were released. Although the stock was up 11% on the day of writing (24 July), I didn't think it would materialise into a sustained rally. I turned out to be right, with the stock down 4% over the past month.
One reason I find it difficult to see a big rebound is weak demand. Revenue fell 11% in the first half compared to the same period last year. It is true that the average selling price of cars is increasing. For example, the average price in the first half was £274,000, up 29% from the figure for the first half of 2023 of £212,000. However, this also highlights the problem. The company is selling fewer cars, but at a higher price. If the price continues to rise, I think demand will fall even further as even the wealthy might look for a less expensive luxury alternative.
From my perspective, I would prefer the company to offer a cheaper entry-level car model, which could then be marketed to more people. This could help boost sales and increase revenue in the future. However, there doesn't seem to be any sign that this will happen. Instead, the company is focusing on releasing new special edition models. These will be even more expensive, so I don't think this will solve the problem at all.
I think the stock price will continue to decline until the company can adopt a strategy that works.
Why it could be a bargain
However, there are still arguments to be made that the stock will become a bargain. Even though the company is loss-making, it has recently raised more funding. This means that there is very little chance of the company going bankrupt in the near future. With access to cash, it has the opportunity to focus on growth. Therefore, this limits some of the risk associated with my purchase now as a value investment.
Another aspect is the difference between market capitalisation and enterprise value. The market capitalisation is £1.19bn, while the enterprise value is much higher at £2.36bn. The latter reflects an alternative way of valuing the company, based on equity, debt, cash and other elements. To me, the difference is too large, indicating that the market capitalisation is potentially too low. The key way for the market capitalisation to increase to a “fairer” level would be for the share price to rise.
Not for me
Despite the above factors, I am still not convinced that Aston Martin is anywhere near the best value on the FTSE 250. I am going to let it go for now and look for better options elsewhere.