Ferrari (NYSE: RACE) stock seems to be stuck in neutral. Some believe that the luxury Italian sports car maker may be poised for a decline. Despite initial excitement generated by Lewis Hamilton's announcement to join Ferrari's racing team, the stock, which had lost momentum since February, has remained stagnant.
The company already boasts impressive margins, with a gross margin of 50.67% and an adjusted EBIT margin of 27.90% in Q1 2024, making further improvements challenging. Ferrari's valuation is considered extremely high, trading at around 55x trailing 12-months non-GAAP earnings and 52x forward earnings. This is significantly higher than most peers, except for Tesla.
The company's projected earnings growth of 14.3% annually over the next 3-5 years is seen as insufficient to justify its current valuation multiples. Ferrari's forward PEG ratio of 3.6x is considered extremely expensive, especially given its low dividend yield of 0.6%.
The Recent Past
Ferrari is seen as an elite automaker with a reputation for excellence. The company is valued at $75 billion, which is 150% of the market cap of General Motors and Ford while producing fewer than 14,000 vehicles last year. Ferrari's business model thrives on scarcity, limiting the potential for significant volume growth. The company's rumored production cap is only about 10% higher than the 2023 output.
The question is whether the company has near-term catalysts to drive stock growth. Ferrari is releasing fewer new vehicles in 2024 than in 2023, and none of these vehicles are expected to be as impactful as its Purosangue model. However, this low production rate could change by the end of next year.
Looking Forward
Ferrari recently invested 200 million euros ($214 million) in its “e-building” in Maranello, Italy, where the luxury automaker will produce its first EV. It is expected to launch at the end of 2025. The company will use this new production site to improve manufacturing flexibility, focus on personalizations, and shorten development time. In addition to EVs, the facility will also produce hybrid cars and ICE (internal combustion engine) vehicles. Production capacity is expected to be about 20,000 cars annually.
While Ferrari is a well-respected luxury auto manufacturer with solid margins and brand value, its stretched valuation and lack of momentum suggest the stock may be due for a correction. It remains to be seen if its ambitious plans come to fruition.
Analyst consensus rates Ferrari stock as a Moderate Buy, with a price target of $425.73, which is close to where it’s currently trading at $421.18. The company will announce its Q2 2024 financial results on August 1.
Neither Julie Stoller nor Stocks.News have positions in this company.
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Contributing Writer
As a professional writer since 2012, Julie Stoller has covered many industries, from healthcare and technology to consumer products and industrials. She has written about IPOs, spinoffs, ETFs, stock splits, commodities, legislative actions impacting investors, and macroeconomic issues. While keeping up with the latest meme stocks and trends, Julie's special interests are discovering ...