E Ferrari: Why This Growth Stock Could Hit The Skids

Ultra-luxury brand Ferrari (RACE) has seen its shares perform extraordinarily well since coming public a handful of years ago. The company continues to produce a very small number of vehicles annually, but they sell for very high prices, and generate world-beating margins in an industry where margins can be very thin.

Ferrari trades today with a market capitalization of $35 billion and generates just over $4 billion in annual revenue. Despite its relatively small revenue total, Ferrari remains a popular constituent in hedge fund portfolios due to its terrific price appreciation, including Perceptive Advisors.

This article will take a closer look at Ferrari, and whether the stock is an attractive buy right now.

Business Overview

Ferrari was founded in 1947 and has remained headquartered in Italy for the entirety of its existence. The company came public in 2015 after being spun off from former parent Fiat Chrysler (FCAU).

Today, it manufactures ultra-luxury supercars and limited edition hypercars for the world’s wealthiest consumers. Ferrari’s volume numbers are de minimis when it compares to the wider industry, producing only about 10,000 vehicles per year. The largest automakers, for reference, produce millions of vehicles annually. Ferrari’s US business makes up about a third of the total, with the bulk of the balance coming from other developed parts of the world.

Ferrari also has a lucrative merchandising business wherein it sells branded merchandise or licenses the Ferrari name and logo for others to use. Ferrari’s brand representation sets it apart from other automakers in this sense as the Ferrari name is a lifestyle brand, not just a carmaker.

Ferrari reported second quarter earnings on August 3rd, with revenue and earnings both showing sizable declines due to COVID-19 shutdowns. Revenue was down 39% year-over-year to $672 million, missing previously-lowered estimates. Declines were attributable to the suspension of production and delivery of vehicles, which have since been resumed.

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William K. 1 month ago Member's comment

Interesting, since I have not thought at all about the Ferrari group at all.

But certainly a drop in earnings that are still quite impressive does not come across as a tragedy. The demand for extreme luxury may have slowed a bit for a while, but I am certain that it will return.Not tomorrow and maybe not this year. But eventually.