The FTSE 250 is widely considered one of the best places to find stocks with attractive valuations at this time.
So, why is that?
Well, there’s a lot of positivity — perhaps on a relative basis — surrounding the UK economy at the moment.
And while investors have pushed into the FTSE 100, it’s worth recognising that 75% of the blue-chip index’s revenue comes from overseas.
As such, analysts have pointed to the FTSE 250 as the best place to find overlooked and undervalued stocks.
Given this appraisal, I’ve been spending a little more time looking at the FTSE 250, and it’s hard to look beyond a stock I already own, Aston Martin Lagonda (LSE:AML).
A 71.6% discount
There are currently more than 10 analysts covering Aston Martin stock. For starters, that’s quite a lot for stock that has a share price of just £1bn.
But more positively, the consensus is pretty positive. On Wall Street, there are four ‘buy’ ratings, and just one ‘sell’ rating.
Including City analysts, the average share price target is 248p, and that means the current share price represents a 71.6% discount.
Of course, analysts, even from the biggest and most prestigious banks and brokerages in the world, can get it wrong.
Nonetheless, it’s definitely reassuring to see the share price target so far ahead of the current stock price.
What’s been going on at Aston Martin?
The stock is actually trading near a five-year low, and is down a phenomenal 86.9% over the past five years.
Aston Martin stock has attempted several comebacks over the past two years, but things haven’t gone to plan.
Earlier in 2024, the stock plummeted again as the Gaydon-based company announced falling revenue and wholesale volumes dropped 26% in the first quarter to 945.
However, management said that deliveries would be weighted towards the second half of the year, with the company focusing on ramping up production of new models.
As such, all eyes are on Aston H2 delivery figures. Under Lawrence Stroll, the car maker has improved gross margins significantly, but it’s yet to deliver on the promised volume gains.
And this is why the stock trades at such a discount. Coupled with a very large debt burden, Aston Martin’s future is very much in the balance.
So, if you’re like me, and believe in the strength of the brand and long-term demand for premium sports cars and SUVs, then the only way is up.
And if you don’t agree, well, this iconic British manufacturer is destined to go under.
What the data says
According to analysts, Aston Martin is set to return to profitability in 2025. The consensus earnings suggests a price-to-earnings (P/E) ratio of 71 times. Moving to 2026, that P/E ratio is just 16 times.
If Aston does follow this trajectory, then it’s undoubtedly undervalued. I have built up a position in the stock, which given risks and its weighting in my portfolio, I’m not going to add more to.
This post was originally published on Motley Fool
