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Are Electric Vehicles dead?
Ferrari (NASDAQ: RACE) says EVs will be a huge market.
The company plans to launch the Ferrari SF90 Stradale PEV in 2025.
Ferrari’s new EV factory in Maranello Italy is expected to open in June.
The maker of the Prancing Horse plans 60% of cars will be hybrid and EVs by 2026.
I’ve loved Ferrari ever since I was a little boy. And I remember having a poster of the iconic Ferrari F40 in my bedroom wall.
I’ve been lucky enough to make two visits to Ferrari headquarters in Maranello.
My wife and I honeymooned in Italy. During our stay in Bologna, we took a day trip to the factory and museum.
Last year we visited for a 2nd time with our 4 kids. They were amazed by the beauty of these extremely special supercars.
Ferrari is an iconic brand.
It’s also been an amazing stock.
Ferrari IPO’d in 2015 at $52. Shares now trade at $411.
That’s a 729% increase in 8 ½ years. Or an annualized return of 28%.
Ferrari’s business has grown considerably during this time.
- Revenues have nearly doubled from $3.1 billion in 2016 to $6 billion last year.
- Profits have tripled from $400 million to $1.2 billion
Ferrari’s growth in revenues and profits justify some of the share price increase. But there’s also something else happening called…
Multiple Expansion.
Basically, I’m talking about the Price-to-Earnings multiple on share of Ferrari.
Ferrari’s IPO valuation was 25x earnings. Today, Ferrari is trading at 50x earnings. That means the P/E multiple for Ferrari has doubled.
Investors have embraced luxury brands. That’s because these are viewed as being recession proof.
Ferrari only makes 13,000 cars per year. And there are far more than 13,000 buyers ready to take delivery – regardless of the economy.
Here’s the key takeaway…
Over the long-term, stock prices are closely correlated with earnings growth. For example, a company growing its EPS at 10% will likely see the share price rise by 10% (on average).
However, P/E multiples are also hugely important to stock prices.
Multiples can compress or expand – based upon how investors outlook for a stock.
My biggest investment successes have been companies including Alphabet, Mastercard, Netflix, Nvidia and Tesla.
These companies have been growing quickly for years. And they’ve also benefitted from increases in their P/E multiples.
Just like you’ve seen with Ferrari.
Ian