Ferrari's (RACE +2.60%) stock slid hard after investors balked at the fresh long-term targets the Italian sports car company revealed earlier this month. Was the stock's sharp pullback justified, given the underwhelming growth targets the company revealed in its five-year plan? Or is this a buying opportunity?
Ferrari is a low-volume luxury automaker that sells scarcity (with Italian flair), not scale. The model has worked wonders in years past. But is its magic wearing off?
Image source: Getty Images.
A temporary lull in sales growth
In Ferrari's second quarter of 2025, revenue rose 4.4% year over year to €1.79 billion. For a stock trading at 38 times earnings, this may not sound impressive. Growth slowed from 13% in the first quarter of 2025 and from 11.8% for full-year 2024.
But this pullback was expected -- and it comes before an expected uptick in growth next year with the help of a new, highly priced supercar (more on this later).
Second-quarter profitability improved. Operating profit increased 8.1% to €552 million, lifting the operating margin to 30.9% from 29.9% a year ago.
Interestingly, even though the stock has cratered recently, the company has only increased its guidance this year. In its second-quarter update, it reaffirmed its full-year target, and the company raised 2025 targets at its Capital Markets Day on Oct. 9. Specifically, management said it now expects full-year revenue of at least €7.1 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of at least €2.72 billion with an adjusted EBITDA margin of 38.3% or higher.
What may have spooked investors
For 2030, the plan outlines about €9.0 billion of revenue and at least €3.6 billion of EBITDA with margins above 40%. It also points to sizable cumulative free cash flow available for buybacks and dividends.
The particular figure that may have spooked investors is likely Ferrari's revenue growth target. It implies a compound average annual growth rate of just 5%. This is a huge step down from last year's 11.8% top-line growth.
Even after the drop, the stock is not necessarily cheap. Shares currently trade at a price-to-earnings ratio of about 38.
But investors should keep in mind that the company's revenue growth should inflect next year, thanks to the ramp-up of deliveries of its F80 hypercar. The hypercar is limited to 799 units (all of which have been allocated to specific customers) but commands an extraordinarily high price tag of about $3.7 million. Of course, personalizations will likely push the price tags of these vehicles even higher. While it may take Ferrari several years to deliver all 799 units, the vehicle should be a tailwind for both revenue and profitability -- especially in 2026.
On the other hand, there's one key tailwind from recent years that may be fizzling out. Management indicated in its Capital Markets Day that it doesn't expect personalization revenue to grow as fast in the coming years. In recent years, add-on revenue from order personalization has been significant. But now that the company is up against tough comparisons from personalizations, this is no longer expected to be a key growth driver for the company. Expect some normalization.
So, where does all of this leave investors?
In the near term, things look great. The business is intact, margins expanded in the most recent quarter, and the 2025 guidance was increased even as the stock declined. In addition, the valuation is not expensive relative to Ferrari's history and profitability profile. The issue, however, is the long-term -- especially considering how conservative the company's growth targets are. The current valuation does not leave a wide margin of safety if growth merely meets the new plan.
Given the iconic staying power of the Ferrari brand, proven over decades -- and a balance of good near-term execution and a big catalyst on the horizon with the F80 -- investors may want to consider buying the dip, but not aggressively. One approach to consider taking is buying a partial position now, watching the cadence of F80 deliveries and 2026 model introductions, and look for chances to increase the position if shares pull back.
