November 4, 2015    3 minute read

How to invest in Ferrari

   November 4, 2015    3 minute read

How to invest in Ferrari

Ferrari is finally available on the NYSE, the Italian luxury race car manufacturer has hit the market after decades of belonging to the larger FCA group.
Reasons to get a hold on this asset are many: the brand is famous worldwide, the products are always cutting edge and of pure Italian gusto, but the main feature of this newborn stock might be different than the classic textbook “high expected future returns”: this share is a zero beta asset.

The rationale

Ferrari is a company which thoroughly exploits its status of luxury car maker. The firm sells around 7,000 cars a year, but still manages to profit more than $2bn, together with its racing team and merchandising. The total sales figure is low, but it is actually the main competitive advantage of the Italian firm, for it can always deliver the amount expected by analysts and never fall below expectations. Moreover, the target customer is one who does not feel the pressure of business cycles. Wealthy individuals are always eager and financially capable of buying a car which has become a real status symbol of affluence. The main goal each year is to target the hottest marketplace to exploit, and Ferrari has managed to do that over the years by shifting its bulk of sales to the middle east and more recently to China as well. As a matter of fact, the sales figure of the Belpaese has fallen substantially over the last decade, but the company has not flinched but on the contrary, improved.

One, risk the firm might incur would be the one of excessive diversification and expansion, which may alter the target figures for the companies profits yet this possibility seems very remote for the company can benefit from the strong management of CEO Sergio Marchionne and, most importantly, a solid tradition, classic trait of any Italian luxury brand.

Another element of uncertainty related to the firm, might be cast by the future of the automotive industry, which might undergo its most radical reshaping in history briefly. Pressure from environmental regulation and climate change may alter the balances of the sector and some companies are likely to yield. Nevertheless, Ferrari will probably maintain its share thanks to the status of luxury brand, avoiding the pressure of changing middle class consumer preferences.

Expected performance

The reasoning displayed above, aims at providing investors with a glimpse of what the performance of RACE might be on the NYSE. “Solidity” is the word that best embeds the ideas outlined in the precedent paragraph. The stock is not likely to skyrocket, neither to wobble, it will, most likely, display a steady performance with a very low “beta”, avoiding the ups and downs of bull and bear markets. In this respect, one could consider Ferrari to be similar to gold, and just like with the mineral, no investor should attempt to boost her returns through it, but should use it to protect her investments from periods of high volatility and uncertainty.
Another element that bolsters this hypothesis is given by the market itself: Ferrari has a 31.54 PE, meaning that investors are willing to pay more than $31 for each $ of earnings, which in turn means that the stock is sensed to be low risk and safe. It is of interest noting that the car and truck industry displays an average PE of 13.55, according to data from NYU Stern School of Business. Overall, there are very few reasons to doubt the future performance of RACE on the NYSE, yet investors should exploit its feature of “solidity” to maximize the utility from such investment.

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