Unprecedented Surge Nearly 700% in 9 Years: Could This Be an Unmissable Buying Chance at Present?
There are certain enterprises that defy typical categorization within the business world. For instance, while Ferrari (RACE 0.22%) undoubtedly falls under the car manufacturing umbrella, it's also recognized globally as a luxury powerhouse. The intertwining of these identities has served it well.
Since its IPO in October 2015, Ferrari's stock has observed an extraordinary surge of 691% (as of present). This translates to an almost 8-fold increase within a span of nearly 9 years. Yet, one may ponder if this automaker's shares represent an unassailable buy-in opportunity at this juncture.
Ferrari: An Exceptional Enterprise
It's highly unlikely that investors scrutinizing this firm wouldn't emerge impressed. Ferrari's reputation as a remarkable business is well-deserved for several reasons.
Ferrari has demonstrated robust growth over the years. From 2018 to 2023, its revenue grew at a compound annual rate of 11.8%. It even witnessed a 6.5% year-over-year rise in the third quarter, all of which can be attributed to improved unit sales.
It's essential to emphasize that Ferrari operates in the luxury sector. The company sold a mere 3,383 vehicles in Q3. However, its restricted output is a deliberate strategy. By keeping production limited, Ferrari maintains its brand image as an emblem of prestige and exclusivity.
Not every individual can afford to acquire a new Ferrari. There's a long queue to even be considered a potential buyer. Ferrari likely wishes to ensure that its vehicle owners will preserve the brand's prestige in the long run.
The strength and exclusivity of the Ferrari brand provide it with formidable pricing power. Some models can retail for over $1 million. Given that these supercars are viewed as collectibles by their affluent clientele, the firm can comfortably increase its prices over time, thus overcoming inflationary pressures.
As Warren Buffett once stated, "The most crucial determinant in evaluating a business is pricing power." If a company can boost its prices without losing customers to competitors, it boasts a robust enterprise. Without a doubt, Ferrari fits into this category.
The fusion of this powerful brand and pricing power has resulted in extraordinary profitability. In the last quarter, Ferrari posted an astounding adjusted operating margin of 28.4%. This figure surpasses what mass-market automakers achieve and even overshadows Tesla.
Given that it caters to some of the world's wealthiest individuals, this firm exhibits a degree of recession-resistance. While an economic downturn may transiently affect it, individuals with substantial net worth are generally more resilient to economic crises than the majority, maintaining their lifestyles without significant adjustments.
Ferrari's Premium Prices
Taking a closer look at Ferrari's inner workings reveals a well-constructed organization, and its stock merits investors' attention. However, after such substantial share price increases, the stock is no longer an inexpensive proposition, even with a 12% depreciation since August.
The shares now trade at a P/E ratio of 50.5. This is more than double the typical valuation of the S&P 500.
Bulls may perceive this lofty multiple to be justified. However, I suggest remaining invested in the firm and waiting for a substantial dip in the valuation before including it in your portfolio.
Investors who are keen on exploring potential investment opportunities might find Ferrari's performance intriguing. Given its robust financial performance and exceptional brand value, investing in Ferrari's stocks could be seen as a strategic move in the realm of finance.
Ferrari's strong pricing power, stemming from its luxury brand image, allows it to charge premium prices for its vehicles, often surpassing the million-dollar mark. This pricing strategy helps the company combat inflationary pressures and maintain profitability, making it an attractive choice for investors who value such traits in a company.
