Luxury car-maker Aston Martin (LSE: AML) came to the market with a great deal of fanfare at the end of 2018. However, since the company’s IPO, the shares have failed to live up to expectations.
Year-to-date, the stock has underperformed the FTSE 100 by around 30% and every £10,000 invested in the company at its IPO is worth just £7,000 today.
Terrible update
It doesn’t look as if this performance is going to improve any time soon. Earlier this year, management warned that the company is facing challenging market conditions, and this challenging environment has persisted.
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As a result, the company now expects wholesale vehicle delivery volumes to sit between 6,300 to 6,500 in 2019, that’s down from guidance of around 7,100 to 7,300 in February, a reduction management has labelled “disappointing“.
The decline in wholesale volumes is also expected to weigh on profit margins. Management is now forecasting an adjusted earnings before interest, taxes, depreciation and amortisation margin of around 20% for 2019, down from 24% as reported in February. The one bright spot in the group’s business is retail sales, which expanded 26% in the first half of the year. But this hasn’t been enough to offset the decline in wholesale sales volumes.
Against this backdrop, management says it is “taking decisive action to manage inventory and the Aston Martin Lagonda brands for the long term,” which includes reducing capital spending and concentrating on the quality, not the number of vehicles produced. That’s all well and good, but falling sales volumes aren’t going to bolster investor confidence in the company, which is badly needed considering the stock’s performance since its IPO.
With this being the case, unless there is some good news from the company soon, I think shares in Aston Martin will only continue to decline as investors drift away from the floundering business.
A better buy
In my opinion, a better business to invest your hard-earned money in is Greene King (LSE: GNK).
Greene King and Aston Martin couldn’t be more different. One’s a UK-focused pub operator, and the other is a global luxury car brand. One conjures up images of lukewarm pub food and sticky tables, while the other produces cars driven by James Bond.
However, Greene King is profitable and has a history of returning cash to investors, while Aston Martin is losing money and has declared bankruptcy seven times.
As an investor, I know which company I would rather own. This year, City analysts believe Greene King will report a net profit of nearly £200m and earnings per share of 64p, which puts the stock on a forward P/E of just 10. On top of this, analysts have pencilled in a dividend per share of 33.3p, of giving a dividend yield of 5.1% at current levels. These metrics are desirable when compared to Aston Martin. With wholesale car deliveries falling, there’s a good chance the firm could report a loss for 2019, and there’s no chance of a dividend for at least several years.
That being said, Greene King is facing its own problems. Rising costs and cooling consumer spending are potential risks to growth, but the company has so far managed to deal with these problems effectively. Analysts are predicting an 18% increase in earnings per share this year. That’s why I’d rather invest my money in Greene King than struggling Aston Martin.
