What Is One of the Best Auto Stocks to Own for the Next 10 Years? (Hint: An Upcoming Model Costs Nearly $4 Million.)
Key Points
Ferrari is successfully maintaining a luxury image, offering very expensive cars.
It thereby enjoys a fat profit margin.
Its growth has slowed a bit recently, but it's still growing.
- 10 stocks we like better than Ferrari ›
When I'm asked about the best auto-related stocks to own for the coming decade, two names come to my mind first: AutoZone and O'Reilly Automotive. Each has averaged annual gains of around 20% or more over the past 15 years.
But each seems overvalued at recent levels, too -- and it's important to not only invest in great companies, but to do so at good or great prices.
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So here's a different automotive stock to consider: Italian automaker Ferrari NV (NYSE: RACE). While a Ferrari car can cost you $250,000 to $500,000 or more, a share of the company's stock was recently going for around $390. Ferrari stock has averaged annual gains of 23% over the past decade, and is down 27% over the past year (as of March 30).
Thus, the shares seem attractively priced, with a recent forward-looking price-to-earnings (P/E) ratio of 30 well below the five-year average of 41, and the price-to-sales ratio of 7.2 below the five-year average of 9.4.
So let's take a closer look at why you might invest in Ferrari. For starters, know that its stock has slumped due in part to worries about the effect of tariffs and to underwhelming projections from management. Revenue has been growing, but growth has recently slowed some.
In Ferrari's fourth quarter, revenue was up 7% year over year, with operating profit up 12%. Remarkably, the company's net profit margin was a hefty 21%. That points to Ferrari's business model, which is centered around selling fewer products at a higher price. This helps the company maintain an exclusive, luxury image. (Its upcoming F80 costs an eye-popping $4 million or so, and is already sold out.) Companies can succeed like that, but many others chase high volume and accept lower profit margins.
So give Ferrari some consideration, and remember that there are other promising auto stocks out there, and plenty of great growth stocks, too.
Should you buy stock in Ferrari right now?
Before you buy stock in Ferrari, consider this:
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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ferrari. The Motley Fool has a disclosure policy.
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