Ferrari (NYSE:RACE), a ‘Failed’ IPO…

Ferrari (NYSE:RACE), a ‘Failed’ IPO…

$RACE

Ferrari (NYSE:RACE) is not used to losing.

Its $250,000+ sports cars are the epitome of luxury, style, and exclusivity. When you see one cruising down the street, most people can’t help but stop and stare.

Ferrari started as a racing company.

Founder Enzo Ferrari handcrafted finely tuned speed machines whose sole purpose was to go faster than any other car could.

Winning is in Ferrari’s blood. It has won a record 238 Grand Prix races. Yet recently, Ferrari looked like a loser.

Fiat Chrysler CEO Sergio Marchionne stands with a La Ferrari in front of the New York Stock Exchange prior to Ferrari’s IPO, Wednesday, Oct. 21, 2015. Ferrari roared onto the New York Stock Exchange and its shares, trading under the ticker symbol RACE, jumped sharply Wednesday in their public debut.

On a cool October morning, 8 new Ferraris sat parked outside the New York Stock Exchange in downtown Manhattan…

For most of its history, Ferrari was a private company. It was owned by the Ferrari family and Fiat Chrysler. That all changed when Ferrari IPO’d on 21 October 2015.

For the 1st time, individual investors could own a piece of the company, and many were standing by to buy in.

Ferrari began trading on the New York Stock Exchange (NYSE) under the ticker “RACE.” No surprise, hype was huge.

Businesses do not get much sexier than Ferrari. Ambitious young people dream of buying a Ferrari when they “make it.” Older people buy Ferraris to feel young again.

Ferraris are the ultimate status symbol. At $200,000+ a car, most people will never own one. Ferrari’s IPO was a chance for any investor to own a piece of the iconic Italian brand.

Ferrari’s IPO was a media circus, the media reported that shares of the Italian carmaker were “well oversubscribed” heading into its IPO.

It suffered a disappointing 1st week of trading, slipping 6%. Ferrari then dove 41% during its 1st 4 months as a publicly traded company, as you can see below:

RiskHedge
RISKHEDGE

Ferrari went public at a $9-B valuation. And at a price-to-earnings ratio of 33, it was priced for rapid growth.

Ferrari’s business will never grow rapidly, it cannot. Ferrari is in the exclusivity business. Ferraris are special because they are rare. The company keeps a strict cap on production to make sure their cars remain special.

In Y 2015, before it went public, Ferrari sold just 7,000 a year. It has gradually ramped that up to 9,200 cars now, which is tiny compared to automakers like Ford (F) that sell 2-M+ cars a year.

4 Months after Ferrari went Public, things looked bleak

The stock had been nearly cut in half. But this was exactly the right time to buy Ferrari stock. It would bottom out and 2X over the next 12 months…just the beginning.

As you can see below, Ferrari has soared 431% since bottoming out in early Y 2016. That’s more than 5X the S&P 500’s return over the same period.

RiskHedge

Ferrari followed a predictable pattern: Failed IPOs can make you a killing if you know how to play them. See, all the hype around Ferrari doomed its IPO to failure. It went public at high a valuation, virtually guaranteeing its stock would decline.

But although Ferrari’s IPO went poorly, its business was doing great. That is an important distinction.

Ferrari turns a big profit, year after year, selling luxury cars to rich people. Its business is rock solid. Ferrari makes an average of around $80,000 profit per car it sells. This blows most other carmakers out of the water. Even luxury carmaker Porche only turns a $17,000 profit per car.

Ferrari is one of few brands that will be around for decades to come. Rich people will always want to own iconic cars, even with electric and self-driving cars coming.

Ferrari is the Aristocrat of the automotive sector.

Enzo Ferrari’s iconic Italian Supercar manufacturer claimed the title according to the latest Brand Finance Global 500 2019 report launched at the World Economic Forum in Davos.

HeffX-LTN overall technical outlook for RACE is Very Bullish, overhead resistance is NIL and Key support at 165.00, as all Key indicators turned Very Bullish and the stock has established long term support ahead of this breakout.

Ferrari finished at 167.66, +2.41 Monday in NY.

Ferrari will continue to create value in the long term. Ferrari is a quality 1st long term luxury products investment, and I see it at 200+/share in that frame.

Ferrari will continue to create value in the long term. Ferrari is a quality 1st long term luxury products investment, and I see it at 200+/share in that frame.

Have a terrific Holiday week

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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