Why I’d buy this FTSE 100 growth stock over Aston Martin in a heartbeat
Since arriving on the market at the beginning of October, shares in luxury sports car maker Aston Martin(LSE:AML) have spent a lot of time in reverse gear. That’s continued today, despite the publication of a solid set of third quarter numbers.
Revenue at the £3.7bn-cap jumped 81% to a record £282m over the three months to the end of September (compared to the same quarter in 2017), thanks to “strong demand” for its new models and excellent growth in the US (up 185%) and Asia Pacific (up 133%). Sales in the UK also rose 66%, making up for “some softness” in Europe, the Middle East and Africa.
Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 93% to £54m as the company shipped 1,776 cars to customers over the period. Reported pre-tax profit for Q3 came in at £3.1m.
In other news, progress continues to be made on the construction of the company’s new plant at St Athan in Wales, due to be operationally ready in the first half of 2019 and set to produce the “breakthrough” DBX model — Aston Martin’s first SUV.
Reflecting on its performance for the first time as a listed company, CEO Dr Andy Palmer said that today’s numbers gave management confidence that full-year targets would be met “with sales at the top end of the range” (6,200-6,400 units). Separately, Aston reconfirmed that it expected a 23% rise in adjusted EBITDA margin for the full year.
The market, however, seemed distinctly unimpressed, with shares falling 6% in the first hour of trading. Clearly, some of this will stem from the ongoing confusion surrounding Brexit and the potential for this to impact on production and sales at the business. Nevertheless, I still think Aston’s market-cap — at £3.7bn — is still far higher than it should be (despite already being 20% lower than at the time of its IPO), based on the size of its earnings.
At a time when it feels prudent to favour value over growth (or at least growth at a stratospheric price), I still wouldn’t go anywhere near the stock.
If you’re looking for a company known for making luxury goods but whose stock price looks infinitely more appealing, I think £7.3bn-cap Burberry(LSE: BRBY) hits the spot.
As summarised by my Foolish colleague Roland Head last week, the FTSE 100 giant has actually been performing fairly well in what remains a tough retail environment. Interim results for the 26 weeks to 29 September revealed a 4% rise in revenue (excluding the now-discontinued Beauty wholesale division) at constant currency. At £178m, adjusted operating profit was 4% lower, but it’s important to recognise that this actually represented growth of 8% once foreign exchange headwinds were taken into account. That really isn’t too bad at all.
With the luxury fashion house confirming that its outlook for the full year hadn’t changed, I’m beginning to think that the 25% fall in value since reaching all-time highs back in September presents prospective investors with a great opportunity to buy in. True, the shares still aren’t cheap, at 22 times earnings, but, as Warren Buffett advises, it’s often better to buy a wonderful company at a fair price rather than the other way around. Taking into account the consistently high returns achieved on the money it invests and its strong balance sheet, I remain bullish on Burberry’s stock for the long term.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.