Ferrari N.V. (NYSE:RACE) is not like any other carmaker.
Volkswagen AG (ADR) (OTCMKTS:VLKAY) owns high-end brands such as Bentley, Bugatti, Ducati, Porsche and Lamborghini. German brand BMW owns Rolls Royce. Fiat SpA (ADR) (OTCMKTS:FIATY) owns Alfa Romero and Maserati. Ford Motor Company (NYSE:F) owns Aston Martin.
Ferrari is still the only luxury performance brand that is still operating on its own. Its focus on small production (the company expects to deliver 8,400 cars this year, while Ford expects to make around 2.5 million) and super high pricing has allowed RACE to get through every major recession unscathed, while booming in the good times.
Given its focus on the 1% of the economic elite, it’s business continues to thrive as the gap between the “haves” and “have nots” grows, thanks to central banks’ near-decade-long easy money policy.
This notable difference is becoming increasingly obvious, seeing how RACE stock has performed since its public listing in late 2015. RACE is up about 100% in the past 18 months.
Granted, automakers have been doing well for several years, but RACE’s unique business model is making it stand out on Wall Street — like its beautifully crafted cars stand out on Main Street.
RACE Stock Has the Numbers
First of all, RACE’s gross margin is enormous, more than double most car company margins, even though competitors are doing well with gross margins around 20%. Tesla Inc (NASDAQ:TSLA) is the outlier at around 23%. RACE maintains a gross margin of 49%.
Ferrari’s EBITD margin is 27%, while the industry average is around 14%. Because it only has 3,400 employees, the company doesn’t have huge legacy issues like healthcare and pensions hanging over its head. Plus, RACE has a deal with Fiat to make engines for some Alfa Romeo and Maserati brands.
That leverages RACE without expanding production, which would lower the value of the brand. It’s like making more cars without actually making more cars. And, Fiat is making a bigger move in the U.S. market, introducing the Alfa Guilia sports sedan. This move by the Italian automaker portends a growing role for RACE in the U.S., beyond just the Ferrari brand.
Numbers for the first half of 2017 certainly bear this out. As reported in May, first-quarter profit was up 60% and revenue was up 22%. RACE stock is up 48% year to date, even outpacing TSLA. And, engine sales to Maserati were up.
But, this isn’t TSLA. Ferrari has been around for decades and its weight in the racing world is enormous. Remember, cars are fast-moving advertising billboards and Ferraris are the priciest billboards on the market. According to motorsport site Autosport, RACE is No. 1 on the F1 racing circuit, bringing in more than $190 million just for advertising in 2016.
What’s more, even with its big run, RACE stock is trading a P/E of 40. TSLA has a market cap three times larger than RACE, but has no P/E since it’s still losing money. Also, RACE has been making cars since 1940, so the company has some experience running a disruptive car business through both good and bad times.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.