Aston Martin Lagonda (LON: AML) share price attempts to bounce back in 2023 faded as concerns about its balance sheet continued. The stock initially jumped from a low of 84.10p in 2022 to a high of 396p in July. It has now erased some of those gains and is trading at 208p.
Lags the luxury car boomThe luxury vehicle industry is going through a major boom as evidenced by the performance of companies like Porsche and Ferrari. This trend will likely accelerate if global stocks and cryptocurrencies continue their uptrend.
In the US, key indices like the Dow Jones, Nasdaq 100, and S&P 500 are sitting near their all-time highs. Similarly, in Europe, Italy’s FTSE MIB, DAX index, and CAC 40 have all jumped. Similarly, Bitcoin is hovering at its highest point in two years.
Luxury brands do well when global assets are thriving because of the strong investor and consumer confidence. This explains why I am optimistic about luxury brands groups like LVMH and Hermes.
While its stock has retreated, Aston Martin Lagonda does not have a revenue problem as there is still strong demand for its vehicles. The most recent results showed that the company’s revenue rose by 21% in the first three quarters of the year. Its gross profit rose by 30% while its EBITDA rose by 64% to 131 million pounds.
The company is also seeing strong demand for its vehicles. Its wholesale vehicles rose to 4,398 units while its revenue jumped to 1.04 billion pounds. Its Valkyrie models are sold out while DBX is seeing strong demand.
The company’s key challenge is its balance sheet and scale. Its recent actions have reduced its total debt from over 1.2 billion pounds to 750 million pounds. While this is admirable, there are concerns that it will need to raise additional funds in 2024 or 2025. It also has a major profitability challenge.
Still, analysts at Bloomberg believe that the company will become profitable this year. They see its operating profit margin rising to 25% this year followed by 30% in 2026-27. Therefore, a combination of higher profitability, reduced leverage, and more demand could push the stock higher.
Aston Martin share price forecast
Turning to the daily chart, we see that the AML stock price peaked at 396.6p in July last year. Since then, the stock has been in a strong sell-off amid profitability concerns. It has formed a death cross, where the 200-day and 50-day moving averages make a bearish crossover.
The Stock has also formed what looks like a small double-bottom pattern whose neckline is at 243p. Therefore, the outlook for the stock is neutral with a bearish bias. More downsides will be confirmed if the stock drops below the support at 189p. A drop below that level will see the shares retreat to the next support at 150p.
On the flip side, more upside will be confirmed if the stock rises above the key resistance at 243p. These moves will likely happen on February 28th when the company will publish its full-year results.
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