Back in early 2022, I started to accumulate shares of the luxury supercar maker Ferrari (RACE +0.73%). At the time, I thought it was a safe place to park my cash as inflation, rising rates, and geopolitical conflicts rattled the markets.
I now have an unrealized gain of more than 100% on that position. It might seem prudent to take profits in Ferrari right now as its stock trades just 5% below its all-time high, but I'm not selling it for five simple reasons.
Image source: Ferrari.
1. It's resistant to the macro headwinds
Ferrari's vehicles cost between $200,000 to $500,000, so its customers are so affluent that they're well insulated from inflation and other macro headwinds. So unlike many other automakers, it can easily raise its prices to offset its higher costs.
NYSE: RACE
Key Data Points
Ferrari ended the first quarter of 2024 with €1.37 billion ($1.49 billion) in cash and marketable securities, while its industrial cash flow rose 19% year over year. That strong liquidity makes it a fairly safe stock to own as interest rates stay elevated.
2. It's insulated from supply chain challenges
Many automakers struggled with supply chain constraints over the past few years. However, Ferrari is naturally insulated from those headwinds because it produces much smaller batches of vehicles per year than its industry peers. It suffered a brief decline during the pandemic in 2020, but it quickly recovered over the following three years:
|
Metric |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
Shipments |
10,131 |
9,119 |
11,155 |
13,221 |
13,663 |
|
Growth |
10% |
(10%) |
22% |
19% |
3% |
Data source: Ferrari.
3. It has a clear, long-term roadmap
Most of Ferrari's recent growth was driven by its robust sales of 296-series sports cars, the Purosangue SUV, and the high-end Roma Spider grand tourer. It also allocated several of its Daytona SP3 supercars, which cost more than $2.2 million, to its customers in its latest quarter. Those sales offset its slower sales of the 812 GTS and SF90 Stradale PHEV, which are both approaching the end of their lifecycles, and its discontinuation of the Portofino M.
Last year, Ferrari said it would roll out 15 new vehicle models from 2023 to 2026. It introduced four new models (the 296 GTS, Purosangue, Roma Spider, and 812 Competizione A) in 2023, and it expects to launch five more models (the 12Cilindri, SF90 XX Stradale, SF90 XX Spider, 296 Challenge, and 499P Modificata) in 2024.
In 2025, it will launch its 12Cilindri Spider and first fully electric supercar. That ongoing expansion should attract even more shoppers and keep it ahead of competitors like Lamborghini, which is owned by Volkswagen and Stellantis' Maserati. It could also eventually disrupt the high-end EV market.
4. It generates steady revenue growth with stable margins
In 2024, Ferrari expects its revenue to rise at least 7%, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to hold steady at around 38%, and its adjusted earnings per share (EPS) to increase more than 9%.
From 2023 to 2026, analysts expect its revenue to rise at a compound annual growth rate (CAGR) of 8%, its adjusted EBITDA margin to expand to 40%, and its adjusted EBITDA to increase at a CAGR of 10%. We should take those estimates with a grain of salt, but Ferrari's evergreen business model suggests it can easily hit those targets.
5. It trades at a reasonable valuation
Ferrari's stock might initially seem a bit pricey at 50 times its forward-adjusted earnings. However, it looks more reasonably valued at 28 times this year's adjusted EBITDA, which is arguably a cleaner way to gauge its long-term profitability. By comparison, Tesla, which is growing at a slightly faster rate than Ferrari but faces tougher competition and macro headwinds, trades at 36 times this year's adjusted EBITDA.
Why Ferrari could be a great stock to hold forever
Ferrari's stock might not double again over the next two years, but it still has all the qualities I look for in a long-term investment: a well-established luxury brand, a recession-proof business model, plenty of pricing power; stable growth; and a reasonable valuation. That's why I'm glad I bought Ferrari's stock, and why I won't be selling it anytime soon.
