Image source: Aston Martin
It has been a tough couple of years for Aston Martin (LSE:AML), with the 24% fall in the past month indicating that there are still problems at the luxury car manufacturer. The FTSE stock hit all-time lows last week, with issues, meaning that a friend of mine asked if the company could actually be at risk of going bankrupt this year. Here are my current views.
Serious problems
The business has struggled financially for the past few years. For the 2024 financial year, it recorded a post-tax loss of £323.5m, an increase from the £226.8m in the previous year. Demand is lower, with total wholesale volumes dropping from 6,620 vehicles in 2023 to 6,030 vehicles last year.
If you’re selling fewer vehicles, revenue is going to fall. If the business can’t make a profit at the moment and has a bleak outlook, it’s going to be really tough to make a profit this year or next. Investors aren’t stupid; they can realise this. So the 61% fall in the last year (and even over a longer time period) reflects the view that Aston Martin as a company isn’t where it needs to be.
Another issue that has become evident since January is tariff risk from the US. The new US president is using tariffs as a trade tool, with Aston Martin getting caught in the crosshairs. The exact percentage tariff for exports to the US keeps changing, but I’d imagine it’ll settle around 10-25%. Given the company’s gross profit margin of 36.9%, this is clearly going to be a big hit! The business doesn’t have production in the US, so it can’t just flip manufacturing away from the UK easily.
Managing concerns
One reason why I don’t see a short-term risk of the company going bust is due to liquidity. As of the end of last year, it had cash of £360m and available credit facilities of £154m. At the end of March, chairman Lawrence Stroll announced he was investing another £52.5m. With other forms of debt already in place, the company has enough cash flow to prevent any sudden issues that could stop operations.
Another bright spark comes from the revamped vehicle line-up. The new Vanquish sports car has won various performance awards, which could help drive better sales this year. Given the continued price increases (the average selling price in 2024 was up 6% to £245k), this could aid cash flow.
Not for me
Even though I don’t believe the business will go bankrupt this year, I’m staying well away from investing. The problems it faces are substantial. It’s worth noting that it has filed for bankruptcy on several occasions, with the last being in 1987. I think an investor can find better value stock options to consider elsewhere.
