2022 has provided the wrong sort of fast ride for shareholders in luxury car maker Aston Martin (LSE: AML). The company had already endured a bad several years. Nonetheless, the Aston Martin share price has tumbled another 66% so far this year.
That means I can now pick up three shares for roughly the price I would have paid for just one in January. Should !?
Business progress in 2022
In some ways, this has actually been a good year for Aston Martin. In the first nine months of the year, wholesale volumes fell 4%. That does not sound good and does not fit well with the firm’s short-term growth plans.
Indeed, sales volumes were slightly below their level of 2018. But despite lower volumes, revenues in the first three quarters this year came in at £857m. That is a 16% increase on the same period last year.
Revenue was 22% higher than in 2018. So while current management has failed to lift sales volumes significantly, the company is at least generating significantly higher revenues. That reflects a change in the product mix as well as pricing increases. The fact that the firm can do this without losing substantial volume speaks to the pricing power of the brand. I see that as a key asset.
Will Aston Martin turn around?
Despite the revenue growth, I have mounting concerns about the business outlook. If those concerns turn out to be well-founded, that could hurt the Aston Martin share price in 2023 and beyond.
The company maintains it is on the path to achieving around 10,000 wholesale turnover and £2bn of revenue by 2024/25. But that means growing wholesale volumes by 62% and revenues by 83% compared to last year, in a short space of time. Given the business performance so far this year, I see those targets as ambitious, if not unrealistic.
Meanwhile, the firm continues to struggle under the weight of debt on its balance sheet. This is what really concerns me as a potential buyer of Aston Martin shares. The business ended last year with net debt of £892m. Things have got slightly better so far this year. But net debt was still an alarming £833m at the end of the third quarter.
The net debt reduction reflects a rights issue that heavily diluted shareholders. I see a risk of more dilution in future as Aston Martin tries to reduce its borrowing load at a time of rising interest rates.
Even if sales turn around and move into strong growth mode – and the evidence on that front is not compelling for me so far – the company’s financial situation could still be bad. For the full year, Aston Martin expects to have to pay £130m cash in interest costs. I see a risk that the business grows sales in coming years but does not make a profit due to its debt load.
I’m not buying
Based on that, I am not confident that the Aston Martin share price will recover in 2023.
In fact, I fear it could keep sinking, if sales disappoint, or the company decides to dilute shareholders further. I will not be buying the shares for my portfolio.
The post Will the Aston Martin share price recover in 2023? appeared first on The Motley Fool UK.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.