Aston Martin (LSE:AML) shares haven’t been fast off the grid in 2021. However a lot of investors still hope that the share price of the legendary sports and luxury car manufacturer will start accelerating soon. Although I think the shares could reach £20 in 2021, I don’t plan to invest in Aston Martin shares. Here’s why.
Aston Martin shares have disappointed
Looking at the current price, the shares appear to be close to their 2018 flotation figure of £19. But in fact, the shares fell sharply in the years after the company floated. The decline was so precipitous that last month there was what’s known as a reverse share split. Every 20 shares were combined into one share. That’s why the price looks similar to the flotation price. Closer examination shows that the shares have lost over 90% of their value since flotation!
Past performance isn’t necessarily a guide to future returns, however. The company changed its management last year, with a well-regarded new chief executive now at the helm. It also has an executive chairman who has put a lot of his own money into the firm. Clearly, the current management team has the will to make Aston Martin flourish. It may also have the capability to do so, with plenty of motor industry experience.
However, just because a business does well doesn’t necessarily mean that its shareholders will do well. Aston Martin spent a lot of time last year shoring up its finances. It raised over £1bn in debt, at a high interest rate. Even if the company does manage to turn around its car business, much of its profits will need to go towards servicing debt, I don’t expect shareholders will see much benefit.
2021 prospects remain unclear
Aston Martin’s business has faced tough conditions for some time now. Meanwhile, the shares have moved around a fair bit. For example, they almost doubled in November and December. For a two-month period, that’s an impressive performance and I can understand why many investors wonder whether the company’s shares have further upside potential left in them.
Instead of speculating though, I assess Aston Martin shares for their investment potential. The name will be more prominent through its association with Formula One racing. But what’s less clear is how well its cars are selling. A lot’s riding on demand for its SUV model the DBX, which it launched last year. So far, sales data is limited.
The new chief recently pledged to leave “no corner untouched” in an interview with the Financial Times. While that ambition could be a shot in the arm for the automaker, it could also signal ongoing disruption at the company that has struggled to find its feet as a listed company. Meanwhile, with its debt pile, I expect shareholders won’t be rewarded for a long time, even if the company is successful. With so many unknown factors, the company looks like a speculation, not an investment, to me. Aston Martin shares could well reach £20 in 2021, but equally they could tumble in price again. I’ll pass.
christopherruane has no position in any of the shares 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.