Ferrari stock is severely overvalued: is it an attractive buy?

Ferrari, the biggest merchant of super expensive super cars, has also become one of the most expensive companies in Wall Street. Its stock has jumped by 40% this year and by 736% since going public almost a decade ago. This surge has transformed it into the fourth-biggest automakers in the world after Tesla, Toyota, and BYD.

Ferrari’s surge has benefited all its shareholders, including Bailie Gifford, Bank of Italy, Norges Bank, and Blackrock. It has also benefited Exor, a large holding company that owns other firms like Stellantis, Philips. CNH, and Iveco.

Ferrari’s business is doing well

Ferrari has grown to become the biggest player in the luxury automobile industry, where it sells popular brands like SF90, Spider, 12cilindri, and Purosangue, its entry into the SUV industry.

Unlike other automobile industry, Ferrari vehicles are always in high-demand because it targets the wealthy. It also has long waiting list for most of its brands. Most importantly, Ferrari is always selective about who it sells its vehicles to. 

The company’s annual revenues have soared from over $4.2 billion in 2019 to over $6.8 billion in the last twelve months. Its annual profit has also jumped from $787 million in 2019 to over $1.49 billion in the TTM.

Most importantly, Ferrari, like Toyota, has been relatively reluctant to moving into the electric vehicle industry. Its first EV is expected to come online in 2025 with a hefty price of $500k, higher than some of its recent brands. Some analysts believe that most hardcore Ferrari lovers will not be interested in its EVs. 

These analysts cite the recent performance of Porsche, which unveiled the Taycan, a model that has become famous for depreciation. Other traditional automakers that have moved into the EV industry like Ford, General Motors, and Volkswagen have struggled to gain market share and lost billions of dollars. 

Read more: Ferrari stock receives a rare downgrade: find out more

Ferrari’s performance

The most recent financial results showed that Ferrari’s revenues rose to €1.7 billion in the second quarter, with its EBITDA margin coming in at 39.1%. Its net profit jumped to €413 million during the quarter. 

Its revenue rose after the company shipped 3,484 vehicles in Q2, a small increase from the 3,392 it shipped in the same period last year. On the other hand, its industrial free cash flow dropped by 11.1% to €121 million.

Ferrari believes that its business will continue doing well in the coming months. It expects that its annual revenue will be €6.55 billion this year, helped by its recent 12Cilindri order intake. Its industrial free cash flow is expected to come in at €0.95 billion. 

Valuation concerns remain

The biggest concern among Ferrari investors is its hefty valuation, which is one of the biggest in the auto industry.

Data compiled by SeekingAlpha shows that Ferrari has a non-GAAP P/E ratio of 57, higher than the sector median of 15. It also has a forward P/E ratio of 52, also higher than the industry median of 18.

These are big numbers for a company whose growth appears to be sluggish and one that could lose money in its EV business. Data shows that Ferrari’s revenue growth is about 1.37% while its forward figure is 12%. 

Ferrari’s valuation multiples are even higher than that of Nvidia, a company that has a P/E ratio of 54 and a forward multiple of 44. Nvidia, unlike Ferrari, is seeing triple-digit growth metrics because of artificial intelligence. 

The average estimate of Ferrari’s stock among analysts is $485, a few points above the current $471.

To be clear: Ferrari, as a highly premium brand, deserves a high valuation. Also, the fact that it is expensive does not mean that its stock will retreat. In fact, history shows that investing in highly expensive companies is often more rewarding than laggards.

Ferrari stock price analysis

RACE chart by TradingView

The weekly chart shows that the RACE share price has been in a strong bull run since going public. It has jumped from a record low of $30 in 2015 to almost $500 today. 

Most recently, the stock flipped the important resistance point at $441.37 into a support level. This was an important point since it was the previous all-time high.

Ferrari shares have remained above all moving averages and has remained above the 50-week moving average. Precisely, it is about 17% above this moving average.

Therefore, the stock will likely continue with the momentum ahead of its next results in November. It will benefit from the low interest rates that will lead to more spending among the wealthy.

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