1 Magnificent Stock Up Almost 700% in 9 Years: Is It a No-Brainer Buying Opportunity Right Now?

Source The Motley Fool

There are some special businesses out there that just don't fit neatly into the traditional industry buckets. For example, while Ferrari (NYSE: RACE) is certainly a car manufacturer, it's also a world-renowned luxury brand. That distinctive combination has worked to its benefit.

Since this automaker's initial public offering in October 2015, its stock has soared by 691% (as of this writing). That's a nearly eight-fold gain in roughly nine years' time. But with that impressive performance in the rear-view mirror, should investors view Ferrari shares as a no-brainer buying opportunity right now?

Ferrari is a great business

It's almost impossible that investors who take the time to understand this company won't come away impressed. Ferrari has proven to be a fantastic business. There are a few reasons why.

Ferrari has consistently posted solid growth. Between 2018 and 2023, its revenue increased at a compound annual rate of 11.8%. It was up 6.5% year over year in the third quarter. All of this was driven by healthy gains in terms of unit volumes.

To be clear, this is a luxury brand. Ferrari sold only 3,383 cars in Q3. It could easily sell far more. But its limited production is purely by design. It's all about maintaining the brand's image of status and exclusivity.

Not just anyone can buy a new Ferrari. There's a long waiting list to even be considered as a potential customer. The company likely wants to be sure that those who own its vehicles will be good stewards of the brand over the long term.

That brand strength and exclusivity give Ferrari serious pricing power. Some special models can cost over $1 million. But given that these supercars are viewed as collectible items by the elite customers who can afford them, the business can comfortably raise its prices over time, more than offsetting any inflationary pressures.

"The single most important decision in evaluating a business is pricing power," the legendary Warren Buffett once said. "If you've got the power to raise prices without losing business to a competitor, you've got a very good business." There's no doubt that Ferrari falls in this category.

The combination of that strong brand and pricing power has resulted in tremendous profitability. Last quarter, Ferrari posted a stellar adjusted operating margin of 28.4%. That figure is significantly better than what mass-market automakers achieve. It's even superior to Tesla.

Because it caters to some of the wealthiest individuals on the face of the planet, this company is somewhat recession-proof. Sure, an economic downturn in which unemployment soars and consumer spending is pressured might have a small negative impact. But Ferrari's target audience of extremely high-net-worth individuals are better able to navigate recessions than the vast majority of people -- without making many changes to their lifestyles.

Ferrari's premium price tag

When you peek under Ferrari's hood, it's hard not to come away impressed. This is a high-quality enterprise, and its stock should be on investors' watch lists.

However, after such huge share price gains, the stock isn't cheap by any measure. This is true even though it currently trades 12% off the peak it established in August.

Shares now carry a price-to-earnings ratio of 50.5. That's about double the average valuation of the S&P 500.

Bulls might believe this steep multiple is warranted. But the best course of action, in my opinion, would be to continue following the business and wait for a sizable pullback in the valuation before adding it to your portfolio.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

  • Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $380,291!*
  • Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,278!*
  • Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $484,003!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 18, 2024

Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Gold ends three-week slide at the $4,400 line — eight straight days of ETF inflows vs a 5% 10-year and a 100 dollarSpot gold closed Friday at $4,378.39, up 0.84% on the day and about 0.8% for the week — its first weekly gain in four weeks — with the intraday high of $4,399.67 leaving it 33 cents shy of the $4,400 line. Gold ETFs have now logged eight straight sessions of inflows, but with the 10-year back above 5% and the dollar index near 100, here is what decides whether this is a reversal or a bounce.
Author  Suzie
Sep 20, Sun
Spot gold closed Friday at $4,378.39, up 0.84% on the day and about 0.8% for the week — its first weekly gain in four weeks — with the intraday high of $4,399.67 leaving it 33 cents shy of the $4,400 line. Gold ETFs have now logged eight straight sessions of inflows, but with the 10-year back above 5% and the dollar index near 100, here is what decides whether this is a reversal or a bounce.
placeholder
WTI (USOIL) Is down 2.13% on Sep 22: What Is Driving the Move?WTI (USOIL) is down 2.13% at Sep 22 05:55(ET), now at $89.999, with a 7-day down of 12.84%.What is driving WTI (USOIL)’s stock price down today?The retreat in US crude oil benchmark prices was primari
Author  TradingKey
Sep 22, Tue
WTI (USOIL) is down 2.13% at Sep 22 05:55(ET), now at $89.999, with a 7-day down of 12.84%.What is driving WTI (USOIL)’s stock price down today?The retreat in US crude oil benchmark prices was primari
placeholder
October hike odds climb toward 60% as Goldman and BofA both flip — what Warsh's "dose of accommodation" really changedRate futures now price roughly 55% to 62% for a 25bp hike at the October 27-28 FOMC, up from about 30% before Chair Warsh's post-meeting framing that the Fed is merely "removing some accommodation." Goldman Sachs has added an October hike to its forecast and Bank of America now sees moves in both October and December. Here is the repricing, the language behind it, and the two data points that decide it.
Author  Irene Q.
Yesterday 06: 22
Rate futures now price roughly 55% to 62% for a 25bp hike at the October 27-28 FOMC, up from about 30% before Chair Warsh's post-meeting framing that the Fed is merely "removing some accommodation." Goldman Sachs has added an October hike to its forecast and Bank of America now sees moves in both October and December. Here is the repricing, the language behind it, and the two data points that decide it.
placeholder
Memory chips surge, Nasdaq notches a second straight record close — why the Dow fell 185 points anywayMicron gained 5%, SanDisk 6.8%, Seagate 4% and Western Digital 3% as the memory complex led the Nasdaq Composite to a second consecutive record close of 27,244.28. But the Dow fell 185 points as JPMorgan, Wells Fargo and Schwab slid more than 3% each — a split tape that says more about positioning than about the economy.
Author  Irene Q.
Yesterday 06: 51
Micron gained 5%, SanDisk 6.8%, Seagate 4% and Western Digital 3% as the memory complex led the Nasdaq Composite to a second consecutive record close of 27,244.28. But the Dow fell 185 points as JPMorgan, Wells Fargo and Schwab slid more than 3% each — a split tape that says more about positioning than about the economy.
placeholder
Gold Price Forecast: XAU/USD drifts toward $4.300 with bears gaining tractionGold (XAU/USD) retraces Tuesday’s gains on Wednesday and drifts lower, approaching the $4,300 area as the US Dollar Index (DXY) rallies further amid high US Treasury yields.
Author  FXStreet
Yesterday 10: 02
Gold (XAU/USD) retraces Tuesday’s gains on Wednesday and drifts lower, approaching the $4,300 area as the US Dollar Index (DXY) rallies further amid high US Treasury yields.
goTop
quote