Back in August, I wrote about Aston Martin Lagonda (LSE:AML). As the stock was beaten down, I concluded I wasn’t going to buy as I felt it was likely to fall further, albeit at a slower pace. A couple of months on, it’s true that the FTSE 250 stock has dipped even more, but at a fast rate. Here’s what I think investors need to be aware of.
In the past month, the share price has fallen by 20%. This means that over the past year, the loss stands at 39%. A factor since my last article was a trading update from early October. It cut its 2025 outlook, saying it now expects a larger-than-previously-expected loss.
Part of this relates to lower wholesale volumes, with weaker demand in North America and China. These are two of its biggest markets, so it doesn’t bode well going forward. On top of this, Q3 deliveries came in below expectations. The business flagged delays and a watered-down rollout for its Valhalla hypercar, which previously was meant to be a catalyst for growth.
The update and subsequent actions following the update pulled the stock lower, continuing the downward trend it’s been in for 2025.
The business has posted negative earnings per share for several years now. It looks very likely that for 2025, it’ll be another loss-making year. Naturally, there’s only so long a company can run at a loss before it’s game over. Without profits, cash flow starts to dry up.
In the latest update, management said the company will not generate positive free cash flow in H2 as previously hoped and is trimming capex and operating costs to preserve liquidity. I think the company will need to raise more funds via debt or maybe an equity offering at a discounted price.
Regardless of the method it decides to deal with cash flow problems, I only see it as a further negative for the share price. I don’t think investors want to put their money in a business that continues to lose money and has to seek additional debt to keep operations alive.
I think investors can find better value stocks in the FTSE 250 than Aston Martin. Yet I need to be careful that my view isn’t overly negative. There’s potential for this to be a contrarian value pick that could pay off big time in the years to come if the company has a turnaround.
The firm has a strong brand name to rely on. If demand picks up in key markets, the Valhalla gets a great reception, cash flow problems ease, and sentiment around the company improves, the stock could rally. Yet it’s too risky for me to consider at the moment.
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