Ferrari (RACE) $375

I had first posted on Ferrari in Feb 2025, calling it excellent but overpriced at $464. The stock has fallen 28% from its 52-week high of $519, and bounced off its 52 week low of $356.

All of the positives of a moat of an iconic brand with strong pricing power, operating leverage, and high margins still apply. I’ve copied the article here for more details.

What has changed and is it worth buying now?

The multiples have shrunk and the stock looks very attractive. At $375, Ferrari now sells for 33x forward earnings growing at 11% - that is a far cry from the over 40x multiple it used to sport. A PEG (Price Earning To Growth ratio) of 3 is also low compared to the previous years. Similarly it is selling for just 7x sales with a three year projected sales growth of 7%.

Operating leverage is good with earnings growing faster at 11% compared to 7% sales growth and operating margins and cash flow margins have remained high at 27% and 29%, respectively in the last 3 quarters.

While investors were disappointed with the October 2025 investor day guidance of just 5% sales growth, which led to the big fall, the long-term story is intact and then some.

The company’s order book is completely filled till 2027, indicating that its overall branding strategy of around 2-year waiting times and scarcity remains fully intact. Another interesting positive is that Ferrari usually sells around 81% of its new cars to its 14,000 existing customers, creating demand from scarcity for the 2,800 customers who are accepted as new ones. This incredible bottleneck to be accepted in the Ferrari ecosystem is a huge competitive advantage. 40% of new clients are under 40 years old, which means they’ll be around for a while. The personalization program is also working well accounting for 20% of total revenues.

I believe these are good enough reasons to buy at this price of $375.

Here is a summary of the earlier article.

Positives

Unlike other auto companies, Ferrari’s brand strength and exclusivity provide it with a deep moat, leading to stable cash flows and high profit margins. In its high-priced ultra-luxury segment it doesn’t have any competitors. There are notables such as Maserati and Porsche, but Ferrari’s roars and soars above them.

The upcoming all-electric Ferrari model, while a significant shift, is expected to maintain the brand’s iconic status and appeal to wealthy customers.

Excellent operating leverage – sales growth of 7% has been consistently providing earnings growth of 15%

Massive pricing power – unit sales hardly grow 2-3% the rest is all pricing.

Operating margins of 26-28%, no one else in auto is even close to that.

Negatives 

At $464, Ferrari biggest negative was its valuation

Valuation doesn’t leave much room for appreciation - this was when the price was close to $500, now at $375, we have a larger margin of safety: Because it’s such an excellent premium brand without serious competition and stable growth, conventional pricing/valuation hardly applies to it – but Ferrari’s current valuation with a P/E Ratio of 50x and 0.60% dividend yield begs the question, how much more can you get from it?

The stock has already returned 25% in the past year and 174% in the past five years, these are way above its historical averages.

Key risks include product concentration, dependency on Formula 1 sponsorships, and potential US tariffs on European manufacturers impacting costs - this was mitigated by Ferrari simply raising prices!.