Ferrari: Is the stock now attractive?
The stock is down 35%. Is it time to buy this great company?
Invest at your own risk; this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.
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Christmas is today (depending on where in the world you are), and it is a great time to know what to buy right now. Find my best buys for December here:
Ferrari
One word with so many emotions. Fantastic emotions for car enthusiasts, the sound and the looks of the cars are among the first emotions that come to mind. Environmentalists and left-wing people will also have strong emotions, just very different ones. Ferrari is one of the most prestigious car makers and has a fantastic racing history. Le Mans, Mille Miglia, and Formula 1 are just three of the racing series that it dominated in the past.
Founder Enzo Ferrari was a visionary and racing team owner who, against his will, became a businessman. He had to sell cars to afford his very expensive hobby: racing. While some car companies follow the slogan “win on Sunday, sell on Monday”, Enzo Ferrari was always on the brink of bankruptcy since he prioriztied that sucess of his racing team over everything else.
You can learn more about the man and founder behind the horse here.
https://joincolossus.com/episode/senra-enzo-ferrari-the-man-and-the-machine/
I highly recommend you listen to this podcast and follow the man behind the show, David Senra. What Enzo did for the automotive world, David Senra is doing for biographies.
You might wonder why I tell you about the past of Enzo Ferrari: There are some similarities to the stock listed company nowadays. A fantastic company, but make sure to have the right timing. Two companies where the timing is very good right now are Adobe and Salesforce. Make sure to check out my deep dives, which you will find here:
Ferrari, the company
The Italian car maker Fiat (the Italian equivalivant to Volkswagen) bought 50% of Ferrari in 1969 and increased its share in 1988 to 90%. The management of Fiat realized the company Ferrari would be worth a lot more as an independent company compared to being just one of many brands in the Fiat Chrysler Automobiles conglomerat and so Ferrari became an independent company in 2016, and the stock was spun off to holders of Fiat Chrysler Automobiles.
The move was brilliant, and Ferrari shares only knew one direction: Up. Fun side fact: Ferrari has one of the very best tickets out there: RACE. In 2016, you could have bought Ferrari shares for just $35, and you would be up a handsome 10x.
The current car portfolio
While Ferrari has a very low chance of being disrupted by AI, I believe it is very important to know what is happening in that area. You will find my opinion and some very interesting facts here:
Ferrari has overhauled its complete car portfolio in recent years, and there are plenty of interesting choices. While I prefer the looks of the previous generation, I can understand the new design choices. Ferrari even managed to release a new V12 car, which is a miracle given the current emission regulations. Ferrari named it aptly 12Cilindri.
Ferrari also released its newest hypercar, the F80, which follows the footsteps of the 288GTO, the F40, F50, Enzo, and LaFerrari.
The F80 is limited to just 799 cars and has an output of 1200 hp. Ferrari chooses who is allowed to buy the car based on your past collector’s history with Ferrari. Yes, you heard that right. You cannot just buy one; you must be allowed to buy one. You get awarded points for cars that you own and events that you participate in to further strengthen the mythos of Ferrari. Pricing starts at €3.6 million. These are the very cars that make Ferrari so desirable and the cars that kids have posters of on their walls.
Another major hit for Ferrari was the long-overdue release of its own SUV, the Purosangue (Italian for purebred) in 2022. Like all other major luxury and pure sport vehicle brands, the SUV FUV (Ferrari Utility Vehicle) fills a major hole in the portfolio and is bringing in unprecedented amounts of sales. The demand was so high that the delivery time in 2023 was 3 years into the future. Ferrari openly stated that it doesn’t want to produce more than 3000 units per year and a maximum of 20% of all Ferrari cars to keep the spirit of a sports car brand.
With the move to e-mobility and further crackdowns by governments on emmissions it will be interesting if Ferrari can achieve the same success with electric cars. Ferrari will release its first electric car, the Ferrari Elettrica, in 2026. While Porsche released its electric car, the Porsche Taycan, in 2019 and got generally positive reviews, the sales development in the last few years has been lackluster.
The move to hybrid and pure electric cars by Ferrari will be interesting, and it remains to be seen if electric cars can convey the same emotions as combustion engine cars. I doubt they can.
Ferrari, the success story
Enzo Ferrari’s answer to the question of how many cars Ferrari will sell tells you a lot about the company:
Ferrari will always deliver one car less than the market demand.
Ferrari is not a traditional car maker, but rather a producer of luxury goods like LVMH or Hermès. Just like the other two, Ferrari’s P/E ratio was very high in recent years.
That’s why Ferrari has attracted a premium valuation compared to traditional car makers. This is fully justified. Just compare the gross margins and number of cars produced, and you will see that Ferrari is a completely different beast. Ferrari’s gross profit ratio (that is, the delta of revenue and cost of production divided by the revenue) is in a league of its own:
The income statement tells the same story. Revenue more than doubled in the last 10 years. The gross margin is pretty consistent at 50%. Ferrari sold just 13,752 cars in 2024 for an average price of roughly €400k. I arrived at the number by dividing the revenue from cars and spareparts by the number of cars sold. Ferrari also has some sponsorship, commercial, and brand income, as well as a financing division. At the same time, the production costs are just about half of that. Each car sold means that Ferrari makes about €200k profit.
The net income increased substantially as well. Through sharebuybacks the number of outstanding shares decreased slightly in the last few years, and as a result, the earnings per share increased from €1.5 in 2015 to €9.0 in the last twelve months.
Free cash flow is in line with net income. So the net income is an actual reality, unlike some other companies that post high net income, but there is never any cash left in the company.
Ferrari the challenges
The aforementioned move to e-mobility is a clear risk in my view. Will the rich and super-rich continue to spend so much money on electric cars? Will the European Union change laws for car makers, enforcing stricter regulations? Just recently, the 2035 ban on new petrol/diesel cars was significantly watered down. Ferrari’s management just announced that the goal of 40% electric cars in 2030, which was set in 2022, is no longer valid, and instead they plan with 20%.
An interesting number going forward will be the sales to China (light grey). The Chinese economy has been rather weak, and you can expect increased competition on all kinds of luxury goods from Chinese brands. The Chinese consumer will buy more Chinese brands going forward.
Is Ferrari a buy now?
On this chart, you will also clearly see what brought my attention to Ferrari: the drop in the stock price. Ferrari is currently in its largest drawdown since the short dip after it became an independent company. The stock is down 35% from the top.
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