In the auto industry, valuation multiples are widely used to compare companies. It’s worth noting that this comparison can only be made between companies that are similar in nature in terms of business, size, or financials. In Ferrari’s (RACE) case, no other publicly listed automaker is similar enough to the company’s business.
Ferrari’s valuation multiples
As of April 3, 2016, Ferrari’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is 11.6x. This multiple is much higher than mainstream mass market automakers (RWL) like General Motors (GM), Ford (F), and Toyota (TM). These multiples are calculated based on estimated EBITDA of the respective companies for the next 12 months.
Similarly, Ferrari’s forward PE multiple is 21.8x, which is also much higher than other legacy automakers.
Risk factors affecting Ferrari’s valuation multiples
As we know, Ferrari has a stable business model with a proven track record of positive cash flows. The company doesn’t require a high amount of capital reinvestment for future earnings growth. The strategy of exclusivity also helps the company to remain highly profitable at the same time.
Therefore, the market will remain focused on factors such as quality and sustainability of growth. Any revision by investors and analysts in Ferrari’s long-term growth expectations is likely to drive its valuation multiples.
Currently, Ferrari is going through a tough phase, where the sales of its more profitable supercars equipped with the V12 engine are declining. A continuation of this declining trend may negatively affect Ferrari’s future earnings growth estimates and might drive its valuation multiples lower.
Now let’s see what Wall Street analysts are recommending for Ferrari’s stock.