The Aston Martin (LSE: AML) share price has been one of the big losers of 2020. The stock crumbled in the stock market crash as investor sentiment towards the business plunged.
It has since struggled to recover. The luxury carmaker was already in the middle of a drastic turnaround plan when the coronavirus crisis hit. The crisis and pandemic have only stalled its efforts to grow sales and improve profitability.
That said, with a new management team and a stronger balance sheet, the company’s outlook has drastically improved over the past few months.
With that in mind, today, I’m going to take a look at the Aston Martin share price and establish if it’s worth buying after the recent stock market crash.
Stock market crash bargain?
It’s difficult to establish if Aston Martin looks cheap at current levels. The main reason why is because the company isn’t profitable.
The business hasn’t earned a positive net income since 2017. According to City analysts, this trend isn’t going to change any time soon. In fact, analysts have pencilled in losses totalling £300m for the next two years.
However, the company’s most valuable asset is its brand. This is worth far more than the entire market capitalisation of the business at present.
In 2018, Aston Martin’s total brand value was pegged at £2.6bn. By comparison, the current market capitalisation of the business is £1bn.
This suggests the Aston Martin share price is undervalued at current levels, but it’s only a rough estimate. For the brand to be worth that much, there would have to be a realistic prospect of a white knight coming in to pay £2.6bn for the enterprise. As the business has lost close to £1bn over the past six years, that seems unlikely.
Still, it’s difficult to ignore the company’s potential. Its much-anticipated DBX sports utility vehicle is highly sought after. The group has also been taking buyers for its £2.5m hypercar.
This demand tells me that the Aston Martin share price is unlikely to fall to zero. On this basis, I think the stock presents an interesting opportunity after the stock market crash.
Shares in the luxury carmaker are trading close to their lowest levels since its IPO. They could fall further, although considering demand for the products, this seems unlikely.
Instead, it seems to me as if the stock has significant upside potential. If the group can capitalise on the demand for its products, sales could surge.
At the same time, if the firm’s new management can get to grips with costs and stabilise the balance sheet, the company’s financial position would improve dramatically.
Both of these tailwinds could have a significant positive impact on the Aston Martin share price. Owning the stock is part of a diversified portfolio of other growth shares may be the best way to capitalise on this potential while minimising risk.
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Rupert Hargreaves has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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