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Ferrai Stock Analysis : Can Ferrari Maintain Greatness?

Ferrai Stock Analysis : Can Ferrari Maintain Greatness?

Ferrai Stock Analysis : Can Ferrari Maintain Greatness? : Established in 1947, Ferrari has 74 years of development and has become a well-known and successful motorsports brand. 

With Goldman Sachs’ recent downgrade of the Ferrrari stock, ticker: RACE, we decided to come to our own conclusions on the famous automaker.

Most investors will not invest simply because of a firm’s reputation. So to dig deeper on Ferrari as an investment prospect, we will need to analyze Ferrari’s stock trend, company performance, and external market factors that will impact Ferrari’s future stock price.

  1. Stock trend
  2. Overall performance

Despite having a long and storied history, it wasn’t until October 2015 that Ferrari first publicly offered shares on the NYSE. However, although Ferrari has only been on the securities market for just five years, we can still get some insights from the trend of Ferrari’s stock.

If we compare the weekly rate of return of Ferrari stock with that of the S&P500 under the same period. Ferrari’s shock fluctuation is much bigger than that of S&P500.

Since Ferrari went public, Ferrari’s average annual return rate can reach 25.73%, higher than that of S&P500, which is 11.18%. But the variance of Ferrari’s rate of return also reached 1406.26, far higher than S&P500’s 138.22.

However, due to the annual sample size not being adequate enough, we also adopted weekly data, which is more frequent.

Ferrari’s average weekly stock investment return rate can reach 0.55% when that of S&P500 is only 0.277%. At the same time, the variance of weekly returns is as high as 16.94, which is much higher than S&P500’s 6.14.

Information Ratio

In investing, the information ratio is a powerful indicator to measure the performance of an investment. The higher the ratio, the higher the value of the stock worth investing in. The ratio consists of two parts. It calculates the ratio of the stock’s active premium (the expected difference between the return on stocks and the return on a benchmark such as S&P 500) and the standard deviation of the active premium.

Generally speaking, a good information ratio can range from 0.4 to 0.6. It is a very rare case that an information ratio can be higher than 1. The situation depends on the benchmark securities you chose, though. In this scenario, we could assume the S&P 500 portfolio as the benchmark security and calculate the information ratio between Ferrari and S&P 500.

According to the annual data of the past five years, Ferrari’s information ratio can reach 0.68, indicating that its rate of return compared with an S&P 500 portfolio is very appealing.

We can achieve higher returns with a relatively low degree of risk.

Operating performance 

For a well-known company like Ferrari, its performance is often an issue that investors need to consider. Good financial information can give investors enough confidence, and fragile financial conditions often indicate that the prospects for business development are not good enough.

Profitability is often an important criterion for measuring the value and development potential of an enterprise. According to the financial statements released by Ferrari, we can see that, from 2015 to the fourth quarter of 2020, Ferrari’s sales revenue and net interest rate have been on a steady rise as a whole. The only exception is the second quarter of 2020. In this quarter, Ferrari’s sales and net profit have experienced a cliff-like decline. This, of course, is due to the impacts of the COVID-19 pandemic, which forced their factories closed for weeks. 

But the short-term profit decline was only a flash. In the fourth quarter of 2020, Ferrari’s sales revenue hit a record high since 2015, and its net profit reached the second-highest since 2015.

Potential Challenges / External Factors 

Ferrari’s profitability largely depends on its brand value and influence. According to the description of Ferrari’s management, its brand value largely depends on the performance of its racing team in the F1 World Championship. But, we at Rebellion Research strongly disagree with Ferrari management. Most buyers of Ferrari street cars have little to no interest in F1 racing. The impact of COVID-19

Due to the impact of COVID-19, Ferrari’s employees have changed their working methods to remote work. At the same time, several factories are also in a state of shutdown. Vaccination numbers rising and reopening will be necessary for Ferrari to return to normal operations.

Challenges From New Energy Vehicles

All around the world, vehicle deliveries from Tesla reached almost 500,000 units in 2020. Tesla’s Model 3 also has become the best-selling type. Countless other potential competitors are also actively seeking transformation. Ferrari has announced places to go hybrid soon, as well as electric post 2025.

Based on the analysis of its stock trends, I think it will continue to maintain its upward momentum in the future, which is suitable for long-term investment. After a brief analysis of Ferrari’s profitability, I remain optimistic about its future development. Despite Ferrari facing new challenges and uncertainties due to changes in F1 regulations, COVID-19, and competition with new energy vehicles, I still recommend investing in Ferrari for their strong brand and strong financials poised to rebound.

Ferrai Stock Analysis : Can Ferrari Maintain Greatness? Written by Tianze Hu

Edited by Thomas Braun, Lorenzo Lizzeri, Michael Ding, Rohan Mehta, Calvin Ma & Andrew Fu

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