After turning positive on Aston Martin (LSE: AML) shares recently, I’ve been taking a closer look at the company. Following the firm’s cash call and restructuring, I reckon the group’s long-term outlook has improved substantially.
And as one of the most respected luxury car brands in the world, I believe customers will be willing to support the business through its turnaround.
Aston Martin shares on offer
Aston Martin has made some significant changes over the past year or so. A new management team has been bought in, the balance sheet has been strengthened, and costs have been rationalised.
Before these changes, it was clear the group was in trouble. Aston was producing far too many cars. It had overestimated demand and had new cars sitting at dealerships, waiting to be sold.
Having too many vehicles gave the firm two problems. It diluted the brand and meant costs were too high. For example, there’s no point operating a factory that can produce 1,000 cars a year when customers will only buy 800.
One of the first things the new management did was to get rid of excess inventory. Then they reduced output (and costs) to match demand. Now the company only makes a vehicle if the demand is there.
After rationalising the business, the new management raised a chunk of cash to strengthen the balance sheet. The fundraising weighed on Aston Martin shares, but it now means the corporation is “funded forever” according to management.
So, that’s the balance sheet and cost base sorted out. The next challenge is producing new vehicles. Aston has a selection planned. From its long-awaited DBX SUV to the Valkarie hypercar, the firm has plenty for its fans to look out for in the next few years.
All of the above suggests to me that Aston Martin shares have a bright future. The company seems to have put the worst of its problems behind it. All it now has to do is prove that it’s heading in the right direction.
The next few months will be critical for the business. If the carmaker can keep costs low and attract new customers, then 2021 could be the year Aston Martin shares make a strong comeback.
With that being the case, I’m going to keep a close eye on the enterprise. If sales rise, and costs remain under control, I might buy Aston Martin shares for my portfolio. The business would only need to return to profit to prove that it has put the worst of its problems behind it. From there, the group needs to focus on doing what it does best, manufacturing high-quality luxury cars. If it can do that, customers should come flooding back. Investors may reap enormous benefits as a result.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020