Ferrari will always deliver one less car than the market demands. These are the words of Enzo Ferrari, founder of the Italian sports car company, which has just released its financial results for the first quarter of 2024. These were received rather coolly, which was met with a sell-off of shares after the publication. On the other hand, Ferrari's stock market declines have taken place from around historical price peaks. Will the company be able to generate strong numbers in the future, with further reductions in sales? Will it be helped by Lewis Hamilton, who will join Ferrari's Formula One team starting with the 2025 season? Does the company even need such a significant ambassador, given demand far outstripping sales?
Strong financial results, but are they for sure?
The company presented pretty good financial results for the first quarter of 2024, but mixed expectations. Ferrari generated revenue of €1.58 billion, up 10.5% year-on-year, against expectations of €1.55 billion. At the same time, earnings per share came in at €1.95, against expectations of €1.85 and against €1.62 last year. However, the company showed a slightly disappointing outlook for the full current year, pointing to earnings per share of 7.5 euros against an expectation of 7.77 euros. Revenues, on the other hand, are expected to reach a total of 6.4 billion euros against an expectation of 6.5 billion euros. Slightly lower expectations from the company than market forecasts could theoretically suggest an overvaluation in the stock market's share price.
Surprisingly, the higher sales were generated with little change in deliveries, relative to last year at 3,560 cars. Increases in deliveries were credited to the European and U.S. markets, while declines were mainly in China and the rest of the Asian market, which accounts for only 10% of Ferrari's total market. However, the increase in financial performance with a decrease in deliveries is a result of the strength of the brand and rising prices, which do not matter much to customers who are already waiting years for deliveries of their dream cars.
Ferrari - the leader of global luxury
The brand's unique business model provides it with tremendous pricing power and places the company at the forefront of the European luxury goods market. This is for several reasons. First, an “average” Ferrari costs nearly four times as much as a standard Porsche, which means that only the wealthiest can afford the brand's cars. Thus, sales of the brand's cars are immune to the economic turmoil occurring in the world. Moreover, among the most recognizable car brands such as Lamborghini, McLaren and the previously mentioned Porsche, it is Enzo Ferrari's company that maintains the largest operating margins in the market. By limiting supply, valuations of Ferrari vehicles remain high, which, along with a wealthier society, means that demand for legacy models is high enough that these cars can even gain value on the secondary market.
Will Hamilton generate additional demand?
Ferrari is not just sports and luxury cars. It is a sports team competing in many categories, including the most important one - Formula One. The brand's racing spirit is also evidenced by the stock ticker “RACE” itself, and the company itself is listed on the Milan Stock Exchange and the New York Stock Exchange. Ferrari won its last title in the drivers' category in 2007, while the constructors' in 2008. That could change, however, with the addition of one of the world's most successful drivers, Lewis Hamilton, to the team. If the latter manages to lift Ferrari from a chasing position to a winning one, demand for Ferrari cars would likely increase even more strongly. This is shown, among other things, by the history of Aston Martin, which significantly improved its financial condition with increased sales after joining Formula One as a team. Even if the company had no intention of selling more, thanks to its position, it could choose to raise prices, which would further improve margins. There has also been recent speculation about the possibility of F1's best-known car designer, Adrian Newey, joining the team, as he departs from the currently dominant Red Bull just before next season. Will Hamilton and Newey lead Ferrari to victory, not only on the track, but also on the stock market?
Ferrari cars are expensive, but what about the company's shares?
Ferrari's shares have risen about 30% this year. However, after the release of the results, we are seeing up to 6% declines and trading at 373 euros per share - the lowest since February 22. It's worth noting that the marasm in the company's stock price was visible earlier, but after the news of Hamilton at Ferrari from 2025, the company's shares gained almost 10% on February 1. Since its debut in 2016, the company's shares have gained almost 900%. Does this mean that shares are now expensive?
The company prides itself on increasing revenues year after year, but relative to earnings the company may seem relatively expensive. The price-to-earnings ratio is 52.9, while the price-to-forecast earnings ratio is 47.7. How does this compare to the historical performance of the ratio? It appears that the company's shares may now appear expensive relative to projected earnings, which may suggest overbought Ferrari shares in the medium term. If the company wants to maintain its position on the stock market it will have to increase its margins, although as indicated they are still at record levels among car companies. Will Lewis Hamilton help in this? That's what next season 2025 will show us.
Michał Stajniak, Mateusz Czyżkowski
XTB
