On May 4, 2017, Ferrari’s (RACE) forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple was 15.7x. These multiples are based on the company’s estimated EBITDA for the next 12 months.
Ferrari’s EV-to-EBITDA multiple is much higher than mainstream automakers (VCR) General Motors (GM), Ford (F), and Toyota (TM), which have EV-to-EBITDA multiples of 5.5x, 12.1x, and 10.5x, respectively.
Likewise, Ferrari’s forward PE (price-to-earnings) multiple is 29.1x, which is also significantly higher than other legacy automakers. These high multiples could be due to Ferrari’s business model, which is more lucrative than those of other auto giants. In general, luxury vehicles tend to have higher profit margins than mass-market vehicles.
Key factors to watch
In 1Q16, Ferrari’s V12 car sales dropped, which hurt its margins and became a concern for investors. However, in 1Q17, Ferrari demonstrated its ability to revive its V12 car sales, which was also reflected in its stronger YoY (year-over-year) profit margins.
Ferrari’s cars equipped with V12 engines produce more power and are sold at a higher price than cars equipped with V8 engines. A continued increase in V12 cars could boost the company’s revenues and profitability going forward and push its future earnings estimates higher. These higher estimates could also drive Ferrari’s valuation multiples higher in the coming quarters.
In the final part of this series, we’ll explore what Wall Street analysts are recommending for Ferrari stock after its 1Q17 results.