Could the Aston Martin share price ever get back to the IPO level?

Back in 2018, Aston Martin Lagonda (LSE:AML) went public through an initial public offering (IPO). The price at the time was 19,000p. A quick price search will show investors that the current price is around 225p. Clearly, this has declined quite a bit over the past five years. Even last year, it was down 36%.

But with Aston Martin’s share price up 129% in six months and clear momentum with the brand, could it return to 19,000p?

The case for a long-term move higher

For the stock to be able to get back to the IPO level, it will take several years. This is not a negative, in fact if someone told me it would happen in a few months I would be very concerned!

To justify this move higher, businesses must continue to become more diversified. Part of the reason for the jump in the new month is due to the success of the SUV model, the DBX. It accounts for more than 50% of wholesale units in 2022. With future projects including electric cars in 2025 and other initiatives, this wider net should get more clients.

Another important point is to see the Formula 1 partnership continue to grow. The team has done well so far this season, and marketing has benefited the business. In the annual report, it is stated that more than 60% of new clients for the brand, which are in the F1 connection segment. In the coming years, if the F1 team performs well, it can raise Aston Martin to a better global level, which will naturally attract new customers and higher income.

Why did it never happen

Back in 2018, the IPO price gave it a market cap of £4.3bn. Part of this value comes from the assumption that the company will be able to maximize profits in a sustainable manner. This did not happen, and the £57.1m loss in 2018 was the smallest loss in recent years! To put it in perspective, the loss for 2022 is £527.3m.

So a clear sign for the market cap to even approach IPO levels is that losses will narrow and ideally turn into profits. When a company becomes profitable, it is easier to determine value and investors can use metrics such as the price-to-earnings ratio to get a sense of value.

The problem with Aston Martin is that since it has become public, I have not seen any indication that it can make a net profit. In fact, it is a non-starter to talk about the benefits of a large stock price if the business cannot generate profits.

Balancing everything

I struggle to see the stock reaching its IPO price even after a few years of decline, unless it can generate net profit for many years.

However, this does not mean that investors should not consider buying the stock. In fact, there’s a good chance that Aston Martin’s share price will continue to rise over the next year. This is based on the momentum the company has now and better-than-expected 2022 results.