Ferrari (NYSE: RACE) made almost $1 billion on its IPO this week. By most investor measures, that’s a huge success.
Thinking of buying the stock? Read this first…
Since Ferrari’s parent, Fiat-Chrysler (NYSE: FCAU), decided to sell 10 percent of the company, that values Ferrari at $10 billion, which is almost half of Fiat-Chrysler’s current market cap.
And that’s from a company that just makes 7,000 cars a year in Italy. Fiat makes that many in a day.
Are profit margins that high on Ferraris? Maybe, if you consider its cheapest cars are about $200,000 and its most expensive can near the $2 million mark.
You can’t just walk into a showroom to buy one of those beasts. The company calls and tells you that you have been invited to buy one of its cars.
1. Help Fiat erase some of its crushing debt.
2. Help Ferrari increase its production to 9,000 cars annually by the end of the decade.
The stock does come with some warnings…
The company is tied to Fiat and it sources engines to Maserati. If that company can’t sell in the volumes it wants, Ferrari could suffer.
Ferrari doesn’t really advertise, either. Instead it relies on its highly successful Formula 1 racing team to build its brand. If the team loses to others, like it has recently to Germany’s Daimler team, which is Mercedes Benz’s (Xetra: DAI) team, things look bad.
And have you seen the new Mercedes AMG-GT S? It’s a Ferrari-killer from Stuttgart.
Ferrari stock, though, is probably fueled as much by brand loyalty, and the wealthy that buy the cars are probably just as eager to say they help make them as they are to drive them.
Ferrari garages worldwide are now likely festooned with stock certificates right next to portraits of the late, great Enzo Ferrari.
The automotive industry has seen a similar phenomenon before…
In 1986, Harley-Davidson Inc. (NASDAQ: HOG) went public, and for years the stock soared higher and higher as the public wanted to own a part of the company, as much as it did a bike.
In recent years, however, Harley has struggled thanks to competition, notably Polaris Industries Inc. (NYSE: PII), whose line of Indian motorcycles has picked up steam.
Porsche Automobil Holding SE (Xetra: PAH3) has not fared much better.
Although its cars are selling, Porsche has been hit hard by the recent scandal facing the Volkswagen emissions scandal.
For many, though, the thought that their gleaming red prancing horse sports car is made by the same folks who make the Town & Country minivan is probably a shock.
That’s an indignity of which Enzo likely doesn’t approve.
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