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Ferrari N.V.
RACE-N
BUY ON WEAKNESS
Jun 30, 2023
Stock price when the opinion was issued
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Over 33% of owners buy more than one. Can't get a new one till 2028. Hybrid model doing well. Plans for EV. Price rises every year. Customization is pure profit for the company. Not cheap. He plans to hold for a long time. More than a car company, it's a brand.
High quality company that consistently performs. High multiple on stock, but quality products. Doesn't own shares in company, but thinks highly of the company - follows closely. High demand for products with top price tag. High net worth individuals continue to buy products. Very high margins produce excellent cash flows.
Fantastic stock since Day 1. Short term, looks a little soft. Stories about high-end real estate not moving and high-end consumer getting tapped out (but he thinks the wealthy always have money). Looking a bit top heavy. Would expect around $390 as a spot to park; if that doesn't hold will probably see $365 level. Ultimate pounding would be around $310, a 25% haircut.
RSI compared to S&P above the line and leading. You want names like this long term.
Still likes it, and would buy at this price, though of course he prefers pullbacks on some temporary issue. Buying for new clients. Sees it adding new cars and new lines each year. Adding customization and special incentives, growing margins. Valuation is not cheap, but if it were cheap it would be called Ford and you wouldn't want to own it.
Not a lot of exposure to China, so not seeing the same pullback as in other luxury names.
Phenomenal company, massively profitable. Highest gross margins in the industry. Rather than a car company, he thinks of it as a luxury good manufacturer. LVMH came out yesterday with lots of weakness, emanating from China. Ferrari is different. There's such a long wait list for their cars, it's just not economically sensitive. No matter what, the billionaires will pony up.
Be patient, don't chase. Look at on a pullback during market weakness, which will happen.
The amazing thing is that people who buy one don't stop at just one. Resale values can be much higher than what they paid. Demand is insane, slower in China. Growth phase going forward is full-electric, planning to launch in Q4 2025.
One of the world's best companies with a huge backlog, lots of predictability, and slowly adding more cars over the long term. Deserves its premium valuation.
He never owns car companies, because their capex is well beyond their free cash flow. But Ferrari is best in class, because collectors will pay serious money for their custom cars. Ferrari have pricing power, not Mercedes, BMW, etc. RACE boasts 18% dividend growth. Start with a partial buy.
RACE operates in a niche market, has artificial scarcity in sales volume, and has excellent brand loyalty. Its 5-year sales and earnings CAGR of 9.3% and 12.1%, respectively, are impressive, and the company has a good buyback program in place. Forward sales and earnings growth are expected to be strong and it has strong profit margins. Its valuation has become somewhat extended, with a forward sales multiple of 8.9X and a forward P/E of 45.1X. Free cash flows are good, and it has a nice cash balance of $1.5B. Its balance sheet is somewhat weak, with a small equity position and a high debt balance. Overall it's a fundamentally strong name, however, there is room for its valuation to contract and we would not be surprised by a pullback in price over the intermediate term. Generally, your investment is backed up by solid numbers, not just hype.