Ferrari is not amongst the top stocks in the global stock market. And this after Ferrari being always ahead of its rivals for years, at the stock market too.
The Italian Supercar maker has suffered its worst quarter since 2016 and fallen 5.6%. It had been the top performer in the Stoxx 600 Automobiles & Parts index for the last three years. In contrast, its rival Volkswagen AG - owning Luxury brands Porsche, Bugatti, and Lamborghini, has made strong gains.
VW has got a boost from the attention it has gathered from its initiatives in the Electric Vehicle segment, while Ferrari has suffered an underwhelming earnings forecast. Lack of a clear strategy for the way forward in the Electric Vehicle category and, the as-yet unresolved search for a new CEO, a broader failure of the present brand names, in the luxury segment, have all contributed to lower interest from the investors.
“The stock has become too expensive and earnings momentum is fading," said Sanford C. Bernstein analyst Arndt Ellinghorst, also noting uncertainty over the CEO situation and a “lack of EV vision."
During the announcement of the February results, the company gave a conservative estimate for the year. The continuing pandemic woes and the disruptions caused due to it were cited alongside the still unresolved search for a new CEO.
Its ex CEO Louis Camilleri had retired from his role in December 2020 citing personal reasons. This was the second leadership crisis in two years. This has affected its transition towards electric mobility. Ferrari is “making good progress with the search process to identify the right leader," Chairman John Elkann said on April 1.
The new CEO, when appointed, will be faced with the challenge of defining a clear strategy for the company's EV project. The ex-CEO Camilleri, during his last analyst call in November, had cast his doubts over the plan. He did not see the company ever being 100% EV “and certainly, not in my lifetime will it reach even 50%." However, Chairman Elkann had said in February that he envisages Ferrari making a fully electric car by the end of this decade.
The new CEO would have to also address the need for addressing the tightening emission regulations while keeping the present Ferrari Cars customers, who look for powerful cars with the present thermal engines, happy too. The Stocks lofty valuation does not give it too much leeway.
According to RBC Capital analyst Tom Narayan, Ferrari is less of an auto stock and “more of a luxury play." This was reflected in the Investor interest in the stock, the stock had risen 28% in 2020, similar to the performance of Birkin bag maker Hermes International and luxury leader LVMH, even as most other auto stocks were weighed down by the pandemic.
“The outperformance last year was due to the fact that the stock is perceived as more defensive and so something to own when everything else falls," said Antonio Amendola, a portfolio manager at Acoma Sgr. “In the end, those who can afford a Ferrari can afford it in any conditions."
However, in 2021, the stock market dynamics have changed. The investors are shifting more toward cyclical stocks and away from the defensives driven by the optimism of the vaccine rollout and the hope of a global economic recovery.
“With the market rotation, it’s normal to see some profit-taking," said Amendola. “Ferrari’s fundamentals are solid and this can be an opportunity to accumulate if the underperformance persists." As per UBS Group AG analyst Susy Tibaldi, the concern over the company’s EV approach may not be fully justified.
“We don’t think the company is under the same pressure and urgency as its non-luxury peers, due to the fact that a Ferrari per se is not a means of transportation but rather a status symbol, and is rarely the first car in a household," Tibaldi, who rates Ferrari buy, wrote in a March 30 note.