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It’s proving to be a tough end of the month for Aston Martin (LSE:AML) stock. The growth share is down 22% following the release of a trading update this morning (30 September).
Given that the share price is already down 51% over the past year, the move today for the FTSE 250 stock indicates that something big has just dropped.
Details of the report
The trading update detailed that the business is struggling. It reduced the forecast for 2024 wholesale volumes by around 1,000 units. This was blamed on “disruption in its supply chain and continued macroeconomic weakness in China”.
Naturally, if volumes are being reduced, this will have a negative impact on the finances. The management team have adjusted down the full year EBITDA, so that it’s expected to be slightly below that of 2023. Importantly, it’s no longer expecting to achieve positive free cash flow in the second half of this year.
The update did try to strike a positive tone, with it noting that the firm “will be in the enviable position of commencing the new year with a fully reinvigorated portfolio”. This is technically true, with the new car launches and high performance spinoffs meaning that the sales team will have plenty to push. This could help to rebuild revenue for 2025 onwards.
A tough pill to swallow
The size of the reaction in the stock this morning did surprise me. Of course, the update isn’t great. But the reaction from investors is very telling. To me it highlights that this could be the start of another bout of underperformance for the company.
It has been struggling for some time, but the H1 results showed signs that the business was steadying the ship. Revenue was only down by 11% versus H1 2023, with gross profit flat. The average selling price (ASP) for H1 was £274k, up 29% from a year prior.
However, the news today pops any potential optimism that might have existed from the H1 results earlier this summer.
More change needed
Some might make the argument that the issues facing Aston Martin in the update today aren’t long term. Supply problems can be corrected fairly quickly. The China stimulus package from last week could also have an impact, which could help to lift consumer demand.
Although this is true, I’m conscious that the management team at Aston Martin have used various reasons over the past couple of years to blame for the fall in revenue and the continued losses. I believe the business needs to fundamentally change in order to change the decline. Instead of increasing the selling price and selling less cars, it needs to reduce the price to encourage a wider target market to buy.
The trading update today has scared me away from investing right now, although I will keep monitoring the stock going forward.
