Ferrari (RACE) is a leading automaker focusing on the luxury market segment. In the past few years, the company has grown rapidly, pushing its market cap to over $70 billion, making it bigger than mass-market brands like General Motors and Ford.
Ferrari is an iconic brand that has constantly grown its annual and quarterly revenues. Its annual results shows that revenues have soared from over $4.2 billion in 2019 to over $6.59 billion in 2023.
Ferrari, unlike other mass-market brands, does not need to sell millions of cars every year since its vehicles sell for over $300,000. As a result, it delivered 13,663 vehicles in 2023 while GM sold over 6.2 million and Ford sold 6.19 million.
Ferrari’s stock has had a big increase in the HypeIndex ranking as its daily change rose by 282%. It was trading at $417 on Thursday.
Positive hype
Ferrari published strong financial results on August 1st and then boosted its forward guidance in a sign that its business was doing well.
In its new guidance, the company expects that its revenue will be €6.55 billion while its adjusted EBITDA margin will increase to over 2.5%.
Ferrari is also boosting its profitability as its net profit rose to €413 million in the last quarter.
Its Q2 revenue came in at €1.79 billion in Q2 as its order book or backlog continued growing. The company now has an order book well into 2026, helped by its recently launched 12Cilindri and 12Cilindri Spider.
Ferrari shipped 3,484 vehicles in Q2, a small increase from the 3,392 it shipped a year earlier. For a company like Ferrari, shipping fewer vehicles could be a good thing because it reduces supply and potentially hikes prices.
Ferrari may benefit from the ongoing woes among some of its top competitors like McLaren and Aston Martin. Aston Martin, which is listed in the UK, has slumped in the past few years.
Further, the company will continue benefiting as the total addressable market continue growing.
Negative hype
Ferrari faces numerous challenges that could affect its stock performance in the long term.
It is one of the most overvalued companies in the industry. It has a price-to-earnings ratio of 50.88, higher than the sector median of 17.8. Its forward PE ratio of 47.78 is higher than the industry median of 15.
While Ferrari is a good brand, these numbers are significantly high for a company that is having double-digit growth rate.
Nvidia, a company whose revenue grew by over 200% in the first quarter has a P/E multiple of less than 70.
Ferrari also has a more premium valuation multiples than Microsoft, a company with a faster growth rate and better margins.
The other big issue is that the company is working on its first electric vehicle company as it seeks to tap into a huge market. However, experience of companies like GM, Mercedes Benz, and Ford is that moving into the EV industry is an expensive process.
It is also not clear whether Ferrari lovers will be comfortable buying an EV, as we saw with Porsche. While Porsche Taycan was popular at first, it has become a cash burning machine for the company.
Final thoughts on Ferrari
Ferrari has gained some hype after publishing solid financial results and boosting its forward guidance. On the positive side, the stock has formed a bullish flag chart pattern, which is characterized by a tall flag pole and a rectangular chart pattern.
Ferrari has moved above the 50-day and 100-day moving averages, pointing to a potential rebound in the next few weeks. This view will be confirmed if the stock rises above the upper side of the flag at $435. Still, the valuation concerns mentioned above could have an impact on its growth in the near term.
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