Ferrari (RACE) $464
Positives
Unlike other auto companies, Ferrari’s brand strength and exclusivity provide it with a deep moat, leading to stable cash flows and high profit margins. In its high-priced ultra-luxury segment it doesn’t have any competitors. There are notables such as Maserati and Porsche, but Ferrari’s roars and soars above them.
The upcoming all-electric Ferrari model, while a significant shift, is expected to maintain the brand’s iconic status and appeal to wealthy customers.
Excellent operating leverage – sales growth of 7% has been consistently providing earnings growth of 15%
Massive pricing power – unit sales hardly grow 2-3% the rest is all pricing.
Operating margins of 26-28%, no one else in auto is even close to that.
There are a lot of growth opportunities, it plans to launch 15 new models by 2026, anticipating 12% revenue growth from FY25 onwards, supported by high personalization and a positive country mix. This could change the growth trajectory from the usual 7%.
Negatives
Valuation doesn’t leave much room for appreciation: Because it’s such an excellent premium brand without serious competition and stable growth, conventional pricing/valuation hardly applies to it – but Ferrari’s current valuation with a P/E Ratio of 50x and 0.60% dividend yield begs the question, how much more can you get from it?
The stock has already returned 25% in the past year and 174% in the past five years, these are way above its historical averages.
Key risks include product concentration, dependency on Formula 1 sponsorships, and potential US tariffs on European manufacturers impacting costs.
Current Earnings
Q4 results were great: Led by growing demand for personalized vehicles, a strong product mix, and limited exposure to China.
Ferrari managed a strong 14% revenue with just a 2% improvement in shipments – everything else was price increases, leveraging its enormous brand, which has no price elasticity. As a result, profits swelled by 31%, leading to earnings of €2.14 ($2.21), which beat Wall Street’s expectations of €1.84 ($1.90).
“On these solid foundations, we expect further robust growth in 2025, that will allow us to reach one year in advance the high-end of most of our profitability targets for 2026,” said CEO Benedetto Vigna.
Guidance: A little more caution, due to higher supply chain costs and a higher tax rate in Italy. Accordingly, net revenue is expected to increase by ~5% to €7.0B ($7.23B), contributing to a profit of €8.60 ($8.89) per share. This is below the consensus estimates of €7.12B ($7.36B) and €9.07 (9.37), respectively. So far the stock has taken it well. (I guess that’s inelastic too!)
Regionally, sales were strongest in the Americas with shipments up 8% – (it looks like some of our stock trading profits have gone to Ferrari), followed by a 6% gain in APAC (excluding Mainland China, Hong Kong, and Taiwan). Sales in China, Hong Kong, and Taiwan fell 21%, but that’s less than 1% of total Ferrari sales.
FY2024 sales included ten internal combustion engine models and six hybrid engine models, which represented 49% and 51% of total shipments, respectively.
Given the focus on EVs, I expect that trend to continue. If Ferrari’s expansion drive to grow sales 12-15% a year with a stronger lineup of new models starts showing success, I could just end up buying it – if you can’t buy the car, it would be fun to make money off the stock.
