Ferrari (NYSE:RACE) is the Aristocrat of the automotive sector, it boasts margins the other automakers dream of, and those margins continue to trend higher.
Investors are also drawn to the iconic Italian Supercar maker’s strong margins at 24% margins, they are drawn to additional competitive advantages.
1 is Ferrari’s brand and pricing power. That super prestigious brand was not overnight. The F1 racer has built that image over decades of advanced technology and a rich history of dominating the racing competition, and that racing image has helped support ultra-luxury exotic sports car prices. In fact over the past 15 yrs average revenue growth checked in at 8.1% compared to a 5% average growth in sales volume indicating strong, durable, pricing power.
Investors are also drawn to Ferrari because it is more resistant to economic downturns. Ferrari’s target consumer is of very high wealth and is more resistant to changing purchasing patterns during downturns compared to consumers of traditional automakers.
And, while other automakers are concerned with gaining market share and increasing sales, Ferrari has the opposite concern. In fact, automotive sector analysts were initially skeptical of Ferrari as an investment, as the company was known to keep a cap on sales volume so that it could retain its exclusive image and support pricing power.
Now that you understand why Ferrari has been winning, the Big Q is: Can the Supercar maker keep winning?
The Big A: Yes.
You will watch Ferrari capitalize on 2 Key trends, there will be lots of Northside down the road.
1st, Ferrari will unveil its 1st-ever FUV in Y 2022 Purosangue. This will be a fascinating development for investors, as it opens up a new market segment. And since the ultra-luxury SUV market, the Purosangue is estimated to start at $350,000, is more lucrative compared to the sports car market, it will be an big winner for the bottom line.
2nd, many investors overlook how much upside Ferrari still has in the surging Chinese luxury vehicle market. With China’s large luxury vehicle market flourishing in recent years, the additional volume and demand enables an automaker such as Ferrari to expand its volume more than it would normally without diluting its brand.
Ferrari has the capacity to produce 15,000 units annually, up from around 10,000 units currently, at little incremental cost which will send the Supercar maker’s margins even higher in the yrs ahead.
There is a long list of reasons to buy and hold Ferrari, that list is why its consensus forward price-to-earnings ratio is at 52X.
Investors wise beyond their yrs are able to buy solid companies that own proven competitive advantages, regardless of the valuation.
Want to wait and pay less, that is understandable, but realize that might be a difficult task, and you might never be able to add Ferrari to your portfolio. .
Our overall technical outlook is Bullish in here, as all Key indicators are Very Bullish.
Ferrari finished at 186.64, -0.09 Thursday in NY, just shy of its intraday all time highs at 189.26 marked on 3 August 2020.
The Maranello Outfit’s shares were raised to Buy from Hold at HSBC.
Ferrari will continue to create value in the long term. Ferrari is a quality 1st long term luxury products investment, and I have called it at it at 200+/share long term, adjusting it to 200/share short term (after the virus) and siding with BAML to 230 long term for now. The stock is now considered defensive in the sector.
Have a healthy weekend, Keep the Faith!
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