A few weeks back it was reported online how Ferrari had surpassed both General Motors and Ford in market capitalisation. With its shares jumping up by 7% after the positive report of Q1 2020 which I discussed in last week’s article, its market cap reached almost $30 billion. Since then, the situation adjusted slightly with GM going back over $30 billion and Ferrari stabilising at 29.
Nonetheless, it is interesting to look at the Italian manufacturer’s shares performance and compare it to the rest of the industry to have a better indication of how well the company has worked so far.
Ferrari stock (RACE) appreciation reflects the company’s noteworthy results and the continued trust of its shareholders. As of May 12th, none of the other big automotive companies and groups has recorded such resilience to the pandemic threat and a consequent good recovery. Since the lockdown order from the Italian government the company’s shares have lost 29% over their 52-week high ($180.95), and already recovered to just -12% of the same value. Right after (or during) a crisis, a share value that close to an all-time high is an important signal of positive momentum for the company. Also, by looking at the average stock price over Q1, calculated from the daily prices over the 3 months, Ferrari is the only company that already climbed back to that value (Tesla’s exception is mentioned below).
Another exception worth mentioning is Tesla. Since the company as of May 12th has already exceeded its Q1 price average. Its results though are difficult to compare to those of the rest of the industry due to the massive volatility showed in the past few months. This is evident from the difference between 52-week high and low, and the relatively high Beta (1.15) which shows high volatility. Anyway, the stock is still farther from its all-time high than Ferrari’s.
This strong results and resilience to the crisis are a reflection of a healthy business. Ferrari outperforms its competitors in terms of operating and profit margins, with 24% and 19% respectively in 2019. Which has only slightly decreased to 23.6% and 18% in Q1 of 2020. For 2019, the average for high-volume automakers were both around 5%. The data is predictable due to the difference in business model, even if within the same industry. When comparing these results with those of more direct competitors, low-volume manufacturers with similar business models, Ferrari still comes out as stronger.
Similarly, the Italian automaker has also a low and stable debt to EBITDA ratio, decreasing from 2017 to 2019 from 1.17 to 0.94. In a capital-intensive industry such as Automotive, is common to see higher ratios.
These financial results and trust by shareholders reflect the importance of great management and the effective reaction to the pandemic outbreak.
There are currently several positive signals. RACE shares have gradually and constantly appreciated by 92.4% in the last three years. Ferrari showed great resilience in the face of the pandemic. As highlighted in previous articles, the company laid out a detailed plan that made sure to pass through social media passing a clear message of confidence and leading role in this difficult situation. This along with the strong performance of 2019 and Q1 of 2020 is reflected in numerous key factors or KPIs (some highlighted here, more can be analysed too) especially when compared to the rest of the industry and its direct competitors.
Despite the positive outlook, in Q2 and coming months, major risks could arise from weaknesses in the North American market as well as unexpected worsening of the virus contagion numbers.
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