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Ferrari IPO: Upshifting in the Slow Lane

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In October 2015, Ferrari priced its Initial Public Offering (IPO) at $52 a share. The price put the total market value of Ferrari at roughly $11 billion. Since then the shares have traded as low as $31.66. Initially Barron’s ran a piece recommending not to purchase the shares based on their view that Ferrari (ticker RACE) was overpriced. Last October Barron’s wrote:

“The IPO included only 10% of the 189 million outstanding. Ferrari remains 80% owned by Fiat Chrysler Automobiles (FCAU); the other 10% is held by the Ferrari family. 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.

So, skip the stock until it’s cheaper, which it very well might become next year, if Fiat Chrysler, as expected, spins off its stake to its own shareholders.”

In February Ferrari’s stock plunged when management said sales would slow this year and gave poor overall guidance for 2016. This past weekend Barron’s ran another article on Ferrari saying that the stock is coming back down to earth. Barron’s noted, “Now, at a price/earnings ratio of 18 times analysts’ consensus EPS estimate of $1.86 this year, the stock is more reasonably valued, but its outlook is cloudier.” Today George Soros disclosed that he maintains a position in RACE and the stock soared upward almost 10%. RACE closed at $39.10. Perhaps Ferrari stock in the $35 to $40 range represents an interesting buy.

 

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