I’d love to say that Aston Martin (LSE:AML) shares look poised to beat the market, but the data simply doesn’t tell us that. The stock’s down 84% over five years and 39% over one year. But this isn’t a sign of value. It’s just a reflection on the market’s perception of this elite British car maker.
Now, I’m a huge fan of the brand. And I’d love to see the company reach some form of sustainability. It could happen, of course. However, the market’s been waiting for years to see this iconic company turn its fortunes around.
Aston Martin’s net debt now exceeds its market cap. In fact, it’s almost double at £1.25bn vs £653m. And with the company continuing to register annual losses, there doesn’t appear to be much hope, in the short term at least, that this heavily indebted position will meaningfully improved.
Persistent negative cash flow and rising financing costs suggest that debt reduction remains unlikely without a significant turnaround in operating performance or an injection of fresh capital.
So if you’re late to investing, I wouldn’t suggest thinking about Aston Martin shares to help you beat the market. It’s something I’ve considered, but it’s not for me.
Instead, investors may be better off putting their money into stocks where the data is simply stronger.
Data-driven approach
Personally, I can’t see many stocks in the automotive sector I’d buy today. However, here’s an example of a stock I think investors should consider because the data is strong.
That stock is Jet2 (LSE:JET2) and there are several reasons for this, starting with the balance sheet. Including customer deposits, Jet2 has a net cash position around £2.1bn.
That’s a huge figure when we consider that the company’s market-cap’s just £2.6bn. It implies an enterprise value of just £500m, which is only a fraction more than the company’s projected net income for the coming year.
As such, the net-cash adjusted metrics look incredibly strong. It currently trades around 0.65 times enterprise value-to-EBITDA. Its peers trade between 1.7 times and 3.9 times.
The risks? Well, its profitability margins are thinner than some of its peers. Typically, lower-cost airlines have lower operating margins — Jet2 (6.2%), easyJet (6.3%) TUI (3.2%). This means changing economic conditions can impact earnings more quickly than other parts of the market. Ryanair breaks the trend at 11.2%.
There’s hope that Jet2 can become more efficient at turning revenues in profits however. The company’s investing in a major fleet overhaul as its aircraft are typically a little older than its peer group.
But it’s now investing in a single Airbus platform, delivering huge fuel efficiency gains and I’d imagine additional logistical and MRO improvements.
So late-to-the-market investors, or just anyone with a real desire to potentially beat the market, I suggest considering Jet2 shares, not Aston Martin.
