Aston Martin's share price is down 22% today! What happened to this growth share?
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The end of the month seems difficult Aston Martin (LSE:AML) stock. The growth share fell 22% following the release of a trading update this morning (30 September).
With the stock price already down 51% in the past year, today's move of FTSE 250 the stock shows that something big has just gone down.
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A trade review explained that business is struggling. It lowered the forecast for total volumes for 2024 by 1,000 units. This was blamed for it “supply chain disruption and continued economic weakness in China”.
Naturally, if prices are lowered, this will have a negative impact on finances. The management team adjusted the full year EBITDA, so it is expected to be slightly lower than that of 2023. Importantly, it no longer expects to achieve free cash flow in the second half of this year.
The review tried to create a positive tone, noting that the company “will be in a position to wish to start the new year with a fully renewed portfolio”. This is true of technology, as new car launches and high-performance spinoffs mean the sales team will have more to push. This can help rebuild revenue for 2025 and beyond.
It's a tough pill to swallow
The magnitude of the stock reaction this morning surprised me. Yes, the review is not good. But the reaction of investors is telling. To me it highlights that this could be the start of another period of underperformance for the company.
It has been struggling for some time, but the H1 results showed signs that the business was righting the ship. Revenue fell only 11% compared to H1 2023, with net profit flat. Average selling price (ASP) for H1 was £274k, up 29% on last year.
However, the news today dampens any optimism that may have existed in the H1 results earlier this summer.
More change is needed
Some may make the argument that the issues facing Aston Martin in reviews today are not long term. Supply problems can be fixed quickly. China's stimulus package last week could also have an impact, which could help lift consumer demand.
While this is true, I note that the management team at Aston Martin have used various excuses over the past few years to blame the decline in revenue and continued losses. I believe that business needs to change fundamentally to reverse the decline. Instead of raising the selling price and selling small cars, it needs to lower the price to encourage the wider target market to buy.
The trading update today has scared me off from investing right now, although I will continue to monitor the stock going forward.
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