Analyzing Ferrari’s Valuation Multiples before Its 4Q17 Results



Valuation multiples

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

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Ferrari’s forward valuation

As of January 22, 2018, Ferrari’s (RACE) forward EV-to-EBITDA multiple was at 18.1x. The multiple is much higher than other mass-market auto companies (IYK) like General Motors (GM), Ford (F), and Fiat Chrysler (FCAU) with EV-to-EBITDA multiples at 8.2x, 14.7x, and 2.6x.

Note that the forward valuation multiples are calculated based on the respective companies’ next 12-month estimated EBITDA.

Similarly, Ferrari’s forward PE multiple was trading at 32.8x, which was also much higher than other legacy automakers.

What could be factored in?

The demand for Ferrari’s cars with V12 engines improved significantly in the first three quarters of 2017. The increased demand was driven by its recently launched car models. It boosted the company’s profit margins and investors’ confidence in Ferrari’s ability to revive the demand for vehicles with V12 engines. If the improving trend continues, it might have a positive impact on its future earnings growth estimates. It could drive Ferrari’s valuation multiples upward.

Next, we’ll explore some key technical levels in Ferrari stock before its 4Q17 earnings event.


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