Analyzing Ferrari’s Valuation Multiples before 2Q17



Valuation multiples

Valuation multiples help investors make better investment decisions by suggesting if a stock is overvalued or undervalued. While there is a variety of valuation multiples available, we’ll use the forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization). A forward EV-to-EBITDA multiple tells us how a business is valued for each dollar of EBITDA.

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Ferrari’s forward valuation

As of July 24, 2017, Ferrari’s (RACE) forward EV-to-EBITDA multiple was 17.7x. That’s much higher than mainstream mass market automakers (IYK) General Motors (GM), Volkswagen (VLKAY), and Ford (F).

Ferrari’s forward PE (price-to-earnings) multiple was 32.2x, which was also much higher than other legacy automakers.

These forward valuation multiples are calculated based on the estimated EBITDA of a company for the next 12 months.

What could be factored in?

The demand for Ferrari’s V12 engine cars significantly improved in 1Q17, which was driven by recently launched cars. That boosted the company’s profit margins and investor confidence in Ferrari’s ability to revive the demand for V12 engine cars. A continuation of this improving trend may have a positive impact on its future earnings growth estimates and might drive Ferrari’s valuation multiples higher.

Currently, the market could remain focused on factors such as sustainability and quality of growth. Any downward revision by analysts in Ferrari’s long-term growth expectations could likely drive its valuation multiples lower.

In the next part, we’ll look at some key technical levels in Ferrari stock before its 2Q17 earnings release.


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