Ferrari’s (RACE) name can get most people’s hearts pumping from the excitement of mouthwatering prospects. This iconic brand is the most decorated team in Formula 1 racing cars and is synonymous with the competition. When people think of luxurious sports cars, they usually think of Ferrari. It’s a company that has run very effectively over the years but according to James Fox has now hit a roadblock.
Here are 3 reasons why Ferrari might be in the face of a minor decline:
- Signing a superstar didn’t create the expected momentum: When Lewis Hamilton signed for the Italian giants, shares’ price climbed, but not for long. Hamilton’s star quality can have a growing influence over a new generation of fans and initiate new commercialized collaborations. Still, as of yet, it hasn’t spiked the needle as management hoped it would. Since shares surged in February, right after his announcement, RACE stock remained pretty much the same. The company’s indicators don’t show that the stock is overvalued. However, the faster-moving average (MACD), which helps identify trends in the market, is falling under the signal line (an indicator for investors when to sell or buy a stock) and, in this case, points toward a bearish position, or in other words-a possible sell.
- A problematic premium value: Ferrari’s valuation is impressive, with its stock trading multiples (P/E) of 55x and 52x for forward earnings. This puts it in a premium bracket of its own compared to other peers in the industry, like Mercedes (MBGAF), which trades at 4.6x and 5.7x forward earnings. However, its expected Compound Annual Growth Rate (CAGR) for the next three years is 14.3%, which looks more than solid, but is not on par when looking at the multiples.
- A Strong business model makes improvement a hard task: Ferrari’s business is sound and a profitable one in creating shortage, and thus separating itself from other cars manufacturers. This strategy has helped created a growing demand, and pre-booked vehicles. Its production revolves around 15,000 cars in 2024, a 10% increase from 2023, pointing to marginal growth increase. In the other hand, expanding the manufacturing of cars might diminish the brand’s prestige, and only slightly increase its margins.
Conclusion
Ferrari is one of the most heralded brands in the car industry, and it is seemingly doing all the right things: signing a superstar to its Formula 1 team and maintaining its distribution philosophy of producing a handful of vehicles yearly. However, indicators suggest its stock is facing a possible decline, as its premium valuation creates difficulties for substantial growth.
