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Forget Aston Martin stock, this FTSE 100 company looks safer

Kirsteen Mackay
Dice engraved with the words buy and sell

Aston Martin Lagonda (LSE:AML), one of the world’s most iconic luxury car companies, has seen its share price take a disastrous slide since its initial public offering (IPO) in October 2018. The shares have seen a high of £19.15 decline all the way to a low of £3.71 and are not much better now at around £5.80.

Where did it all go wrong?

Luxury consumer goods are coveted but not always purchasable by us mere mortals, and it would seem this may have played a part in the company’s share price demise. At the time of AML’s IPO, it estimated production for 2019 to be 7,100–7,300 cars. Then in July, it reduced this number to between 6,300 and 6,500 cars.

The company reported a significant pre-tax loss of £78.8m in the first half of 2019, which becomes even more painful when compared with the £20.8m profit reported for the same period in 2018.

Danger hides in beauty

The current share price is so low that many investors will be tempted, simply because the brand enjoys over a hundred years of history and prestige throughout the world, in part thanks to its long-held association with James Bond.

However, in all those long years, it has declared bankruptcy no fewer than seven times.

Yet, the beguiling beauty of the cars continues to captivate and entice.

AML’s biggest shareholder, Strategic European Investment Group S.a.r.l., clearly thinks the company has growth ahead. It has agreed to buy a further 3% of issued and outstanding shares in the company for £10 each, or approximately £68.4m. So, a few fortunate investors who bought in at the low stand to make a quick profit.

The company has seen growth in the US and China, but within the UK and Europe, sales have been on a sharp decline.

AML does not offer a dividend, its earnings per share are negative at -61.7p, and it’s running on a tiny operating margin and negative profit margin. There is speculation that it may need to raise further capital through another share placing, which would further dilute the price.

Personally, I’m not convinced there is enough demand for such high-end luxury considering the volatility of the current global climate, and Aston Martin’s track record of multiple bankruptcies does not bode well. Lagonda’s aim to be the world’s first zero-emission luxury brand is perhaps more timely, but it will not come cheap. Although the current share price is low, I think AML comes with too much risk and I would avoid.

Clean air ahead

Johnson Matthey (LSE:JMAT) is a global science and chemicals company working to reduce automotive emissions through its innovative product range. This includes emission control catalysts along with components for sensors, spark plugs, and automotive glass. Clean air is one of its four divisions, along with efficient natural resources, health and new markets.

FTSE 100 constituent Matthey is a £5.7bn company with a trailing price-to-earnings ratio of 15 and earnings per share of £2.15. It has a dividend yield of 2.75%.

Although investors may worry that clean air solutions will not be in demand once electric cars become commonplace, this won’t happen overnight. With regulations tightening up globally the company is positioned to sell its clean air solutions in many polluted areas including India and China. I think it’s where it needs to be for future growth and sustainability and consider it a Buy.

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Kirsteen 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 2019