Under the Spotlight Wall St: Ferrari (RACE)

Next weekend’s Formula One season opener in Melbourne will give Ferrari ($RACE) fans their first look at the latest addition to its legacy of automotive excellence: Lewis Hamilton. 

The seven-time F1 world champion will compete for Scuderia Ferrari this year, a move the team hopes will deliver its first championship since 2008. But beyond that, Hamilton’s appointment generates buzz among Ferrari loyalists just as the luxury carmaker cranks up production of the limited-run F80 and unveils its first ever all-electric vehicle later this year. 

Ferrari is known for raw power, and its shares keep up the pace. We last looked at the company in May 2023 and $RACE shares have enjoyed a blistering 60% rally since. This reflects strong earnings, fuelled by demand from wealthy clients happy to pay up for Ferrari’s reputation for luxury and precision engineering.

But with a prestige valuation multiple and a market cap that places it fourth behind Tesla ($TSLA), Toyota ($TM) and BYD ($BYDDY), some analysts question whether the share price is over-revving. The valuation debate was accelerated after the billionaire Agnelli family – Ferrari’s largest shareholder – sold a 4% stake in late February.

Horse power

Revenues and earnings of the Prancing Horse have galloped higher as bullish stock markets and rising property prices have grown the pool of uber-wealthy keen to have a Ferrari in their garage. The biggest market is the U.S, which accounts for 25% of shipments, followed by Germany at 10.7%. China accounts for just under 6% of shipments.

Ferrari engineers the exclusivity of its brand with the same finesse as it does its cars. Low volumes and waiting lists are integral to the company’s strategy. These are closely managed to promote an image of scarcity and appeal, but without frustrating clients into spending their cash on rival luxury marques. In 2024, the company sold 81% of its new cars to clients already owning at least one Ferrari, and 48% to folks who own multiple.

Annual shipments rose from 7,255 in 2014, the year before its IPO and separation from Stellantis ($STLA), to 13,752 in 2024. The company has introduced eight new models since the start of 2023, with six more planned for 2025 – including the first fully electric Ferrari, in the fourth quarter of the year. Despite these growing numbers, the output is still restrained – which, of course, delivers pricing power. And this is reflected in Ferrari’s earnings, with an 11.8% increase in FY24 revenues of €6.67b far outpacing the increase in shipments that year. Cars and spare parts account for around 85% of net revenues. EBIT rose a hefty 16.7%, and the EBIT margin widened to 28.3% from 27.1% in FY23. 

Top gear

As the only team that’s competed in every F1 Championship since 1950, Scuderia Ferrari finished second in the Constructors Championship in 2024. Bringing Lewis Hamilton in shows it’s serious about claiming the top spot in 2025 – and not only for pride, but for the cold hard cash that comes with it from broadcasting rights. 

Formula 1 maintains a prize fund based on the profits earned from commercial activities managed by the entity, including promoters’ fees, television broadcasting royalties and partnership agreements. Shares in this prize fund are paid to the F1 teams, largely based on their ranking in the championship. Basically, first place equals more cash. 

Being part of Formula 1 allows Ferrari to promote its brand and technology to a global audience without resorting to traditional advertising activities. The company uses F1 for a number of marketing initiatives, such as hosting clients in the Ferrari Formula 1 Club to watch races with Scuderia Ferrari. Its drivers also participate in promotional activities for its road cars.

All of this supports its exclusive image and limits the marketing costs a luxury company normally incurs. 

The visibility of F1 on the media and digital platforms continues to attract significant sponsorships. The company generates around 10% of its revenues from sponsorship, commercial and brand activities. This chunk grew from €499m in 2022 to €572m in 2023 and €670m in 2024, representing annual growth of 14.6% and 17.1%, respectively. This trend has been driven primarily by new racing sponsorships (such as other companies’ logos on drivers’ uniforms and cars), other brand activities like fashion and Ferrari-branded theme parks, as well as those revenues linked to its racing performance.

Revving hard

Ferrari’s sports cars come with a hefty price tag and so do its shares. $RACE trades at around 50x forecast FY25 earnings, which is at the top end of its historical average.

There are some analysts who are bullish and see upside despite such valuation multiples. As luxury brands go, Ferrari shares trade at a discount compared to Hermès International, for example, at around 56x. Global investment bank Morgan Stanley is a fan: it placed Ferrari on its list of best business models and has a buy rating and a US$520 price target. It argues the carmaker’s order book provides visibility on earnings growth. On the other hand, Citi rates the stock as a sell and argues it is overvalued. 

Ferrari’s valuation was placed in the spotlight last month when Exor, the holding company for Italy’s Agnelli family, sold a 4% stake. This has raised €3b, which Exor will use for M&A deals. However, Exor will remain Ferrari's top investor, with a 20% stake and 30% of voting rights.

Stock torque

Ferrari is arguably a play on the spending habits of the world’s wealthiest consumers. While normies consider a new car a discretionary purchase, the fabulously rich consider the latest Ferrari this season’s must-have.

The debut of its first all-electric vehicle can be seen as a gamble for a brand built on petrol-powered performance engines. But long waiting lists suggest that demand for luxury, exclusivity and horsepower isn’t slowing down just yet. 

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.