Ferrari (NYSE: RACE) is known as a symbol of luxury, performance, and exclusivity. Since its first car in 1947, it has defined the racing and automotive industry. The Maranello, Italy-based company continues to make the most sought-after vehicles and has successfully shaped itself as a luxury brand (source) .

Overview

Ferrari operates at the intersection of the automotive and luxury sectors. It uses a low-production and high-price model, which ensures exclusivity and continuous demand. The vast majority of revenue, 86%, comes from cars and spare parts, 10% of the revenue comes from sponsorships, licensing and brand deals, 2% of the revenue comes from engines, and 3% of the revenue comes from other revenue streams including parts and personalization services (source ).

 

Metric	Value
Revenue (TTM)	$7.21 billion
Net Income (TTM)	$1.60 billion
Market Cap	$76.07 billion
Beta	0.5885
Earnings Per Share (EPS)	$8.68
Price-to-Earnings Ratio (P/E)	58
Price-to-Sales Ratio (P/S)	10.55

Source: https://stockanalysis.com/stocks/race/statistics/

Ferrari currently trades at a premium valuation with a P/E ratio of 58. Even though this is higher than most other automakers, the ratio aligns it with luxury goods companies like Hermes, positioning Ferrari as a luxury brand. Ferrari has high profit margins, averaging 20% yearly, which stems from its low-production model that minimizes waste as well as their  price-setting power.

The exclusivity that Ferrari provides to its consumers allows them to charge premium prices for its cars. Ferrari is known to increase the price of its models to $200,000 to $300,000 for every new model while keeping production similar. Ferrari’s electrification strategy could also attract a base of environmentally conscious consumers. Furthermore, the constant demand and the brand value ensure that Ferrari does well during economic downturns since ultra-high-net-worth individuals are usually unaffected during recessionary periods. 

Investment Thesis 

We believe that the market is underestimating Ferrari’s potential in two key areas:

• Brand Value: Ferrari’s unparalleled customer loyalty, supported by its Formula 1 legacy and high-margin licensing opportunities, has been a cornerstone of its long-term success. With initiatives to expand licensing revenue and attract younger demographics, Ferrari is well-positioned to leverage its brand for sustained growth.

• Future Growth Potential: Ferrari is set to drive top-line growth while maintaining its luxury status. Due to Ferrari’s controlled production growth, exclusivity, model portfolio expansion, and Ferraris shift to electrification. Ferrari continues to launch new limited edition models as well as a broader lineup of cars while still maintaining exclusivity due to their low production volume.

Valuation 

	P/E Ratio	P/S Ratio	P/B Ratio	Revenue Growth (YoY)	Revenue Growth (Fwd)
Ferrari	58	13	26	12	13
LVMH	23	4	5	2	4
Hermes	52	15	14	12	14
Tesla	69	11	13	3	13

Ferrari’s current valuation also shows confidence in its ability to sustain its growth. Other automaker companies usually struggle with capital expenditure, whereas Ferrari’s low production volumes and their focus on customization explain higher returns on investment. Between 2018 and 2023, Ferrari’s revenue grew from €3.4 billion to over €5.4 billion ( source ). Its net income doubled, which highlights the operational efficiency of Ferrari. Their margins have been increasing with higher selling prices and cost management efforts.

Catalysts

We believe that over the next three to five years a number of catalysts will validate our investment thesis.

1. Expansion in Emerging Markets: Ferrari is exploring the growing demand in emerging markets of the Asia-Pacific region where economic growth is creating new ultra-high-net-worth individuals.
2. Continuation of Strong Financial Results: Ferrari’s pricing power and operational efficiency will likely result in continued top-line and bottom-line growth over the next few years. This will in part be driven by Ferrari’s new strategy is to sell 40% of its cars to customers under 40 years of age to make sure that they stay in the Ferrari ecosystem and get access to the newer and limited-edition cars. In addition, Ferrari’s limited production and bespoke offerings ensure long waiting lists with sustained demand and customer retention. Ferrari’s certification wing is a growing sector that allows customers to get their rare and vintage Ferrari certified by Ferrari.
3. Expansion of Licensing Revenue: Ferrari’s licensing strategy, including luxury goods and merchandise, has significant untapped potential. Strengthening partnerships and new product lines could boost this revenue stream.
4. Successful Entry into the EV Market: The electric vehicle sector could expand its customer base with the launch of its electric car in 2025 which could strengthen its position in the automobile industry. Ferrari is embracing the electric revolution by launching hybrid models such as the SF90 Stradale and plans to launch its first fully electric car in 2025. Ferrari’s ability to balance its age-old traditional brand with innovation allows it to be the industry leader.
5. Continued Success of Ferrari Formula 1 Team: Ferrari’s Formula 1 team remains a key driver of the brand’s marketing. The signing of Lewis Hamilton could amplify this impact, attracting new fans and boosting engagement. This could also amplify the licensing deals and fashion for Ferrari. Ferrari SF90 Stradale: A Revolutionary Hybrid, (Source : F1rst Motors)

Risks

While Ferrari’s prospects are promising, risks remain. With the recent falling demand in China, it has to focus on other markets. Further, it has a high P/E ratio. Its EV play could also be risky since it would be the first time this premium high-octane car would forage into an electric car. This shift could potentially also disappoint loyal petrolheads which could reduce the demand for the electric vehicle.

Conclusion

This move also helps us diversify our holdings since Amazon was our only holding in the consumer discretionary sector. Ferrari is not just a car company—it’s a lifestyle brand with a robust future. Ferrari is an exceptional choice for our long-only portfolio since it provides an opportunity to be a part of a legacy that combines innovation and history.

Written by : Aaradhya Sharma and Anna Volynsky- Lauzon