Comparing Ferrari’s Valuation to Hermès and Suggesting a Discount

March 31, 2024 | by


Ferrari, the renowned luxury car brand, is currently facing a challenging stock valuation that has prompted a rating downgrade. The company’s release of lower-than-expected guidance for 2024 has contributed to this unfavorable assessment. Several negative factors, including a potential class action lawsuit, a slowdown in buybacks, lower sales in the Chinese market, and uncertainty regarding the adoption of electric-only technology, have further dampened investors’ confidence. Notably, Ferrari’s stock trades at nearly 12 times sales and a high price-to-earnings ratio of over 50 based on the 2024 guidance. Consequently, analysts are anticipated to revise the target price downwards due to projected growth deceleration. Drawing a comparison to luxury goods manufacturer Hermès, it is recommended that a 10% discount be applied to Ferrari’s valuation. However, risks involving slower volume growth, shifts in consumer preferences, technological advancements, and potential Formula 1 setbacks must also be considered. As a result, the rating on Ferrari’s stock has been downgraded to neutral, reflecting the company’s uncertain prospects in the near term.

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Comparing Ferraris Valuation to Hermès and Suggesting a Discount

Ferrari’s Valuation Downgrade

Ferrari, the luxury sports car manufacturer, has recently experienced a significant downgrade in its stock valuation, making it less attractive to investors. This downgrade has come as a result of several factors impacting the company’s financial performance and future prospects. As a result, the overall rating for Ferrari has also been downgraded.

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Lower-Than-Expected 2024 Guidance

One of the main contributors to Ferrari’s valuation downgrade is the release of their disappointing 2024 guidance. This guidance, which outlines the company’s projected financial performance for the coming years, fell below market expectations. Investors were hoping for stronger growth and revenue prospects, but the guidance failed to meet these expectations, leading to a decline in investor confidence.

Comparing Ferraris Valuation to Hermès and Suggesting a Discount

Negative Factors Affecting Ferrari’s Valuation

Several negative factors have had a detrimental effect on Ferrari’s valuation, contributing to the recent downgrade. One of these factors is the potential class action lawsuit that the company is currently facing. Legal proceedings can be costly and time-consuming, and the uncertainty surrounding the outcome of the lawsuit has raised concerns among investors.

Additionally, Ferrari has experienced a slowdown in their buyback program, which has historically been seen as a positive indicator for investors. The decrease in buybacks suggests that the company may be facing financial constraints or alternative investment priorities, which could impact its future growth prospects.

Furthermore, Ferrari has seen lower sales in China, one of its key markets. China’s economic slowdown and shifting consumer preferences have affected the demand for luxury vehicles, impacting Ferrari’s sales figures in the region. This decline in demand has further contributed to the downgrade in valuation.

Lastly, there is uncertainty surrounding Ferrari’s approach to adopting electric-only technology. As the automotive industry increasingly focuses on sustainability and electric vehicles, Ferrari’s future plans in this area remain unclear. The lack of a clear strategy and potential disruption in the transition to new technologies have raised concerns among investors, negatively impacting the company’s valuation.


High Valuation Ratios

Ferrari’s high valuation ratios have also played a significant role in the recent downgrade. The company’s stock currently trades at almost 12x its sales, indicating that investors are paying a premium for owning Ferrari shares. Additionally, the price-to-earnings (P/E) ratio, based on the 2024 guidance, stands at over 50x. These high valuation ratios suggest that investors may be expecting extraordinary growth and profitability from the company, making it increasingly difficult for Ferrari to meet these high expectations.

Comparing Ferraris Valuation to Hermès and Suggesting a Discount

Possibility of Analysts Lowering Target Price

Given the slower projected growth outlined in Ferrari’s 2024 guidance, analysts may be inclined to lower the company’s target price. The target price represents the price at which analysts believe a stock should be traded in the market based on their assessment of its intrinsic value. Slower growth prospects and the negative factors affecting the company’s valuation may warrant a downward revision of the target price, leading to potential downgrades by analysts.

Comparison with Hermès Valuation

In order to assess the severity of Ferrari’s valuation downgrade, it is important to compare it to other companies in the luxury sector. One such company is Hermès, a renowned luxury brand known for its high-quality products. By comparing Ferrari’s valuation to that of Hermès, we can gain insights into the relative attractiveness of Ferrari’s stock.

While both companies operate in the luxury sector, there are notable similarities and differences in their valuations. Both Ferrari and Hermès enjoy strong brand recognition and a loyal customer base. However, Ferrari’s stock valuation is currently higher compared to Hermès. As a result, suggesting a 10% discount to align Ferrari’s valuation more closely with that of Hermès may be a prudent consideration.

Suggesting a 10% Discount

To address the high valuation and align Ferrari’s stock with that of Hermès, a 10% discount to the current valuation could be a reasonable suggestion. The rationale behind this discount stems from the need to bring Ferrari’s valuation more in line with the company’s financial performance, growth prospects, and relative market position in the luxury sector. By offering a discount, investors may be more enticed to consider Ferrari’s stock as a more attractive investment opportunity.

Risks Affecting Ferrari’s Stock

Several risks pose challenges to Ferrari’s stock performance and valuation. Firstly, there is the risk of slower volume growth. With the ongoing economic uncertainties and changing consumer preferences, the demand for luxury sports cars may decrease, impacting Ferrari’s sales volume.

Moreover, changes in consumer tastes and technology can significantly impact the market for luxury vehicles. As consumer preferences shift towards more sustainable and technologically advanced options, Ferrari must adapt its product offerings to remain competitive. Failing to do so could result in a decline in market share and revenue, affecting the company’s valuation.

Additionally, Ferrari’s involvement in Formula 1 racing introduces a potential risk to its stock valuation. If the company experiences failures or setbacks in this highly visible and competitive sport, it could negatively impact investor sentiment and confidence in the brand. Given the strong association between Ferrari’s success on the racetrack and the company’s overall reputation, investors should closely monitor the Formula 1 performance for any potential impact on valuation.

Neutral Rating on Ferrari’s Stock

In light of the recent downgrade and the challenges facing Ferrari, the stock rating for the company has been lowered to neutral. A neutral rating suggests that the stock is expected to perform in line with the overall market and does not offer significant upside potential. This rating downgrade reflects the concerns over Ferrari’s valuation, slower growth prospects, and the uncertainties surrounding the company’s future direction.

The implications of this downgrade on investor sentiment are significant. Investors may reconsider their investment decisions and weigh the risks and rewards associated with holding Ferrari’s stock. It is crucial for investors to carefully evaluate their investment portfolios and assess the impact of this rating downgrade on their overall investment strategy.

In conclusion, Ferrari’s recent valuation downgrade is a result of various negative factors impacting the company’s financial performance and future prospects. The lower-than-expected 2024 guidance, potential class action lawsuit, slowdown in buybacks, lower sales in China, and uncertainty about electric-only technology have all contributed to this downgrade. Furthermore, high valuation ratios, the possibility of analysts lowering the target price, and a comparison with Hermès valuation have shed light on the challenges facing Ferrari. To address these challenges, a 10% discount to Ferrari’s valuation has been suggested to align it more closely with its peers, improve investor sentiment, and create a more attractive investment opportunity. However, risks such as slower volume growth, changes in consumer tastes and technology, and Formula 1 failures continue to pose challenges for Ferrari’s stock. With the recent downgrade to a neutral rating, investors must carefully consider the implications of this downgrade on their investment strategy and make informed decisions regarding their investments in Ferrari’s stock.

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