RACE - Ferrari: Valuation Revving Up Into The Red RPM Zone

2024-04-23 03:42:23 ET

Summary

• Analysts mainly focus on bullish narratives about the luxury company's strategy, whereas my analysis relies on the good old number crunching thereof (in EUR(m)).
• I find no grounds for criticizing Ferrari's fundamental or qualitative aspects.
• The market's valuation doesn't seem justified by the company's growth or a below-average risk profile.
• The valuation is as luxurious as the company's cars, even when considering exclusivity, scarcity, and a willingness to assign higher multiples to Ferrari.
• I typically rate Hold/neutral, even when my inclination is bullish or bearish. Rating systems don't consider time horizons or investment strategies. My articles aim to inform, not to make decisions.

My Stance On Recent Analyses and My Thesis

I have read various Ferrari N.V. (RACE) analyses and concluded that many of them praise the brand's undeniably positive qualities, including the company's strategy and its approach to exclusivity and scarcity. For example , Porsche produces in a year as many cars as Ferrari has in its entire history, or Ferrari's annual output is equivalent to just ten hours of production at Toyota. This artificial limitation of supply results in a 24-month waiting list , in line with the founder's principle that Ferrari would always deliver one car fewer than the market demanded. This, however, comes with the crucial limitation that Ferrari's growth must be constrained in a way that excessive growth could harm its exclusivity. Brand development in China follows this exact approach, where slow, controlled growth is considered necessary to maintain the scarcity that is so vital to Ferrari's identity. What gives the company the perspective to continue this growth with consistent high profitability for years to come is that, unlike mass-market discretionary goods, I do not consider production cost pressure to be a significant concern - it should easily be passed on to the affluent customer base. Additionally, the total addressable market of high net worth individuals shows no signs of high Ferrari penetration yet. Lastly, there might be positive halo effects with Lewis Hamilton as the new Ferrari racing driver, but I wouldn't overestimate this impact, given that the relevant segment is relatively small compared to the entire company....

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