Ferrari(NYSE: RACE), one of the world's most well-known luxury supercar makers, went public at $52 on Oct. 21, 2015. The stock now trades at about $474 -- so a $10,000 investment would have blossomed into more than $91,000 in just under nine years.
But can this hot auto stock head even higher over the next decade?
An evergreen business model
Most of Ferrari's vehicles cost $200,000 to $600,000, so it mainly serves extremely wealthy customers who are well insulated from the macroeconomic headwinds. Its brand appeal and pricing power give it plenty of room to raise its prices.
Image source: Ferrari.
Ferrari manufactures much smaller batches of vehicles than larger automakers, so it wasn't as affected by the supply chain constraints that rattled the industry over the past few years. The market's demand for its vehicles also consistently outstrips its available supply, which preserves its scarcity and keeps its order book full.
It's grown steadily since its IPO
From 2015 to 2023, Ferrari's revenue grew at a compound annual growth rate (CAGR) of 10% as its annual shipments rose from 7,664 units to 13,663 units. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also increased at a CAGR of 10% as its adjusted EBITDA margin expanded from 26.2% to 38.2%.
Ferrari kept growing even as the COVID-19 pandemic, supply chain disruptions, inflation, rising interest rates, and other macro headwinds disrupted the auto sector. By comparison, the total number of new cars sold worldwide grew at a CAGR of less than 1% from 87 million in 2015 to 92 million in 2023.
In 2024, Ferrari expects its revenue to grow about 10% with an adjusted EBITDA margin of 38%. That growth should be driven by its 296 series sports cars, Purosangue SUV, and its high-end Roma Spider grand tourer -- as well as newer vehicles like the 12Cilindri, SF90 XX Stradale, SF90 XX Spider, 296 Challenge, and 499P Modificata. It's also been delivering several of its top-tier Daytona SP3 supercars, which have a price tag of more than $2.2 million, to select customers over the past year.
It has clear plans for the future
Last year, Ferrari said it would roll out 15 new vehicle models from 2023 to 2026. It launched four new models in 2023, is on track to launch five new models this year, and plans to launch its 12Cilindri Spider and first fully electric supercar in 2025.
From 2023 to 2026, analysts expect Ferrari's revenue to increase at a CAGR of 9%, its adjusted EBITDA to rise at a CAGR of 10%, and for its adjusted EBITDA margin to expand to 40%. According to Zion Market Research, the global auto market will likely grow at a CAGR of 4.4% from 2023 to 2030 -- so Ferrari could easily grow twice as fast as other automakers.
So where will Ferrari's stock be in 10 years?
Ferrari could keep growing its revenue and adjusted EBITDA at a CAGR of 10% from 2024 to 2034 if it maintains its current momentum. If it matches those expectations, its revenue would grow from an estimated 6.6 billion euros this year to 17.2 billion euros ($19.2 billion) by the final year. Its adjusted EBITDA would rise from 2.5 billion euros to 6.5 billion euros ($7.3 billion). Assuming it still trades at the same valuations, its stock could rise roughly 150% to 160% over the next 10 years.
Ferrari's stock isn't cheap at 30 times this year's adjusted EBITDA, but its strengths justify its premium valuation. Even if it trades at 25 times forward adjusted EBITDA at the beginning of 2034, its stock would still rise more than 70%. It could also ramp up its buybacks -- which reduced its outstanding shares by 3% over the past five years -- to tighten up its valuations.
I'm not certain Ferrari will consistently outperform the S&P 500, which delivered an average annual return of about 10% since its inception, over the next 10 years. However, I still think it's a safe haven play that can easily outperform most of its industry peers. That's why I own this stock, and why I don't plan to sell it even after a gain of more than 130%.
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Leo Sun has positions in Ferrari. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
