The battered share prices of Aston Martin (LON:AML) and Marks & Spencer (LON:MKS) could be tempting for investors. Shares in Aston Martin have struggled almost since it listed on the stock exchange and M&S has been trying to turnaround for some time. For investors does that create an opportunity to buy strong brands at a cheap price? Does it create a chance to make meaningful profits from any success in their turnarounds down the line? These are the questions I’ll try and answer.
New leadership at Aston Martin
One of the main reasons to invest in Aston Martin shares seems to be the hope that a new executive chairman, the billionaire Lawrence Stroll, alongside a new CEO whose come from Mercedes will help improve Aston’s fortunes.
Then there’s also the production of its new DBX SUV, which Aston Martin claims has strong forward sales orders.
And thirdly there’s the move to reduce inventory, which will hit profits in the short term but potentially allow the brand to increase prices down the line and become more exclusive. A similar strategy I believe to Burberry, another luxury brand, under its relatively new CEO.
Turning firstly to the new management Stoll made his money in fashion investing and though he might be a petrolhead he’s not putting a large part of his fortune on the line to rescue Aston Martin. I think buying the shares simply to follow where a billionaire has put a small part of their money isn’t necessarily a smart move for ordinary investors. The new CEO will have a lot on his plate and although he’ll know Aston Martin well it remains to be seen if he’ll have all the answers to its many problems.
In terms of the DBX SUV, Aston expected to sell at around 5,000 units per year, which would comfortably make it Aston’s most popular model. To what extent the pandemic will puncture this is as yet unclear, although it seems very likely. Now the cars are rolling off the production line, a lack of update on sales I think could be a red flag. Wouldn’t a struggling company announce good news if it had some? I’m worried the DBX, which faces stiff competition from the likes of Bentley and others, isn’t going to cut it in making the difference for Aston. Saying sales in China are positive and it has sold out in Australia and New Zealand doesn’t really cut it.
Aston Martin also wants to up its overall car production to well over 10,000 models a year which would be a significant uplift and it has invested in production facilities to do this. This adds significant fixed costs, and therefore risk.
One thing I think many investors will be looking for is a bid. But to invest in the hope of a bid doesn’t seem sensible, that’s just gambling. And what if a bid does come along and they don’t bid a premium? What happens then?
I’m far from convinced that Aston Martin’s shares are for investors with any sort of long term horizon. I think a profitable turnaround is far from assured and the shares are probably better suited to day traders and those that like to take a punt. For income, value and turnaround investors I think there are better investments.
Turning around a tanker that’s fighting back
When it comes to Marks & Spencer I’d come to the same conclusion. Its management team have had longer to try and turn things around but clothing continues to be a drag on the group’s performance. Its struggles with clothing and reaching a new younger audience seem to be behind its troubles and explain why the share price is falling.
Nothing seems to happen quickly. The pace seems to be slower than some of the elderly customers pursuing through the cardigan aisle.
M&S is still quite old fashioned. It’s online offering – even following a tie-up with Ocado which cost is over £800m – seems rather quaint. I don’t mean that as a compliment. The group has been slow to adapt when competitors have seen the change coming. M&S is on the back foot. It really doesn’t inspire confidence that the business has a culture that is entrepreneurial and value-creating. The CEO has worked at M&S his whole working life so will be steeped in that culture.
Covid-19 won’t have helped either. Even fewer customers in stores and a lack of online presence will likely have hit M&S harder than rivals. M&S lost £52m in March alone because of the virus. In August, the supermarket it was cutting 7,000 jobs in the next three months.
It also said In-stores sales for the last eight weeks were down 47.9% year on year, with online sales strongly higher, up 39.2%, leaving total sales 29.9% lower and total revenues 10% lower in the last two months. This shows just how reliant M&S is on the high street and how far behind its been left behind in an increasingly digital world.
The executives talk of strategies and turnarounds, but delivery has continued to be woeful. That’s why I don’t think Marks & Spencer’s shares are likely to improve.
For me I have a natural instinct to want to buy cheap shares, but even so, I can’t bring myself to invest my money in either Aston Martin or M&S. My belief is over the coming years both share prices will continue their trajectory downwards. Neither in my opinion, is a long term, profitable investment.
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