Barron’s: Buy A Ferrari, Not The Stock

It may be the world’s premier luxury brand. Ferrari(RACE) manufactured just 7,255 cars last year, part of its strategy to keep supply below the level of demand.  The recent IPO of 10% of Ferrari’s shares by Fiat Chrysler(FCAU) followed the same model, making available only a small number of shares.

Barron’s notes that the company’s valuation is unjustified.

It should earn roughly $1.60 a share this year on about $3.3 billion in sales, for a price/earnings ratio of 35 times, 3.5 times the average for premium car makers. But, bulls say, Ferrari is a luxury company. OK, but even the best luxury stocks sport P/Es of 23.

Barron’s further speculates that the upcoming distribution of Fiat’s 80% stake in Ferrari to shareholders will bring the price to a more reasonable valuation as the supply of shares increases eightfold. In the meantime, why not buy a Ferrari- if you can find one.

Disclosure: The author holds no position in any stock mentioned