Has Aston Martin Stock Hit Rock Bottom? 78% Down

The Aston Martin stock price has declined massively this year. And that’s among the reasons Christopher Ruane continues to avoid the shares.

Aston Martin’s (LSE: AML) price tag isn’t for the soft-hearted or the shallow-pocketed. Purchasing one of its Valkyrie cars will save you over 2 million pounds. Lots of savings? Do not bother. The model sold out.

However, considering the firm’s capacity to establish massive demand for expensive vehicles, why did Aston Martin stock dip by 78% within a year? More so, can it fall further? Or should you be spending cash on the firm’s shares rather than saving for their car?

Stock Market Valuations

The response to the initial question is somewhat straightforward. Any stock price beyond zero, despite how far it has dipped, it may always fall further. The question might linger, why would a company selling its expensive products see its stock plummeting that much? It’s due to the difference between a lucrative underlying business & a possible lucrative investment.

Dilution Risk

The situation is somewhat different when you hold shares of a limited company. For instance, you can buy today’s Aston Martin stock price without incurring the liability for the company’s obligations. However, they’ll remain on the firm’s balance sheet.

If the carmaker struggles to pay debts, for instance, it could issue more shares & dilute existing stakeholders. Indeed, Aston Martin has massively diluted shareholders within the last several years, trimming their stake. That occurred this month too, and it seems it will happen again.

Balance Sheet

That comes as the firm has taken massive debts. Net debt was 1.3 billion pounds during this year’s interim stage. Meanwhile, the operational business remains strong.

Aston Martin might become an impressive investment if the firm fixes the balance sheet. However, it had obligations that might drain profits in the future. One way to solve that involves raising funds by diluting shareholders further.

The Share Price Remains a Potential Value Trap

Such a narrative might fit Aston Martin stock. Regardless of the massive dip, it could fall even further. There’s nothing to tell that the shares have hit rock bottom.

The company might struggle amidst the worsening economic space, and a weakening pound might mean persistent challenges for Aston Martin. Also, the current stock price might develop into a value trap, considering the debt load.

Editorial credit: Rowan Patrick Photos / shutterstock.com