The Fastest Stock That Could Unlock Investor Riches ... Slowly

Investors looking to get rich quick probably don't look in the capital-intensive automotive industry. That said, the auto industry is on the cusp of radical change between the use of artificial intelligence (AI), advanced electric vehicle (EV) and software-defined vehicles increasingly filling the roads, and driverless vehicle technology gaining momentum.

While those auto businesses could prove lucrative, don't distract yourself from the industry's true hidden gem: Ferrari (NYSE: RACE). The Italian racing legend has a heritage driven by speed, but ironically, the business might make you rich more slowly.

Image source: Ferrari.

Not your traditional auto company

As far as the automotive industry goes, Ferrari is its own animal. It's widely considered a top automotive stock because it operates more closely to a high-end luxury brand rather than a traditional automotive company. Let's look at three key advantages Ferrari has that all work hand in hand to help investors grow wealth consistently over time.

First up is Ferrari's exclusivity and scarcity. Traditional mainstream automakers aim to crank out high volume to build scale and lower costs, with the ultimate goal of generating a decent margin. Ferrari works far differently and intentionally limits production of vehicles and order books to ensure demand always exceeds supply. While Ferrari limits the supply of its ultra-luxury vehicles, it consistently increases the supply of its vehicles to generate growth over time. Ferrari's exclusivity and scarcity go hand in hand with the next advantage the automaker boasts: pricing power.

Unlike most automakers, Ferrari has the ability to raise prices on its vehicles without hindering demand for a couple of reasons. One reason is that its customer base is highly affluent, and to some, pricing simply doesn't matter. Another reason is customer loyalty -- remember that a big chunk of Ferrari sales go to existing customers. One example of Ferrari's pricing power and exclusivity together can be found with the F80 supercar. Ferrari launches special top-of-the-range supercars about once a decade, taking some technologies from its racing research and development. The F80 price tag will check in at roughly $3.9 million and quickly sold out of a very limited supply of 799 units.

We've covered how Ferrari's exclusivity and scarcity can help drive pricing power, but perhaps most impressive is how all the automaker's advantages combine to drive margins higher. The graph below shows that not only are Ferrari's margins in a different world than competitors', but they are also still consistently moving higher.

Data by YCharts.

What it all means

Ferrari will not make investors rich overnight, but the company's business is about as flawless as it gets in the automotive industry or otherwise. Ferrari has made many investors winners over the past decade as its gains roughly tripled the S&P 500.

The Italian automaker rarely trades at a discount, and even after a 30% decline over the past six months -- Ferrari has a habit of lowballing long-term guidance, which the market didn't take well -- it's still trading at a price-to-earnings ratio of 32 times. Ferrari could make investors rich slowly, and this is a fair price to own arguably the best auto stock out there.

Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool has positions in and recommends Ferrari. The Motley Fool recommends General Motors, Porsche Automobil Se, and Stellantis. The Motley Fool has a disclosure policy.