New low for Aston Martin shares

by Graeme Evans from interactive investor |

It's lost as much as 58% of its value since IPO, and many believe the shares are worth more than this.

The road back for Aston Martin Lagonda (LSE:AML) shares remains as long as ever, with the luxury car maker's latest update today providing another timely reminder to investors about the lofty valuations currently driving the IPO market.

Just seven months after 30% of Aston Martin was sold to investors in one of the highest profile flotations of 2018, the London main market's only automotive stock is now trading at more than half its starting value.

While factors including Brexit uncertainty and the US-China trade war haven't helped confidence, the company was priced too aggressively at 1,900p and at a level that would have put the stock in the frame to join the FTSE 100 index.

Shares were at a record low earlier this week after a series of City downgrades, most notably in April when Deutsche Bank removed its 'buy' recommendation and halved its price target to 1,000p.

The stock briefly registered a new low at 790p in early deals Wednesday. Today's first quarter trading update reiterated guidance thanks to strong US and Chinese demand boosting revenues by 6% to £196 million, but planned higher costs due to product expansion meant adjusted earnings fell 35% to £28.3 million.

Source: TradingView Past performance is not a guide to future performance

The performance in Aston Martin's seasonally quieter first quarter should at least reassure analysts after the post-IPO turbulence. There's clearly some support for the stock - just not at the level that the company's advisers envisaged last summer.

Seasonal factors and the launch of exclusive special edition cars should boost the second half performance, although Numis Securities doubts these factors alone will be the catalyst investors need for the shares to reach the broker's target price of 1,750p. Jefferies, which has a price target of 1,050p, described the details and guidance from today's update as "encouraging".

The maker of James Bond's cars is not alone in disappointing on its stock market debut. Another newcomer, peer-to-peer lender Funding Circle, slumped 25% on its first day in October and the shares are still a long way short of their opening price.

Despite the success of stockbroker AJ Bell, the lacklustre performances of Aston Martin and Funding Circle (LSE:FCH) have knocked confidence in the London IPO market and made prospective investors much more wary about the value of new issues.

Even on Wall Street, where a number of tech unicorns are preparing to list, there's a growing backlash against some of the fundraising multiples.

Ride sharing app rivals Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER) have already been priced sharply lower, with the latter's valuation this week falling to US$63 billion from the IPO's $80 billion and the $120 billion that some investment bankers thought it could be worth last year. All this for a company that has so far struggled to explain how it will make a profit.

Among more recent entries in London, Loungers (LSE:LGRS) and Network International (LSE:NETW) have made modest gains, while insolvency litigation financing company Manolete Partners (LSE:MANO) has surged from an issue price of 175p to 498p.

While investors need to remember that buying shares at an IPO is always risky, they need to think long term rather than about immediate gains. In the case of Aston Martin, a recovery could still be on the cards thanks to a new manufacturing facility at St Athan in South Wales and continued growth at the company's headquarters at Gaydon in Warwickshire.

The St Athan site is pivotal to prospects as the company gears up for next year's launch of its DBX sport utility vehicle, plus a move into electric vehicles with the expected start of production for the Rapide E later this year.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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