Ferrari(NYSE: RACE) is evolving before your very eyes, which is especially interesting if you're a savvy investor and have been following the iconic car company. Ferrari has already expanded its legacy slightly when it launched the Purosangue, its first SUV -- although Ferrari refuses to call the 4-door vehicle an SUV.
And in case you missed it, Ferrari is about to expand on its legacy once again as it enters the world of electric vehicles (EVs).
First ever
After a roller-coaster ride of a year for EVs and their manufacturers, Ferrari is finally preparing to enter the fray. The company is designing an EV built on the legacy of its high-powered gas vehicles. It will be an electric crossover that could arrive as soon as 2026, according to AutoForecast Solutions.
Most EV makers are struggling to bring prices down for consumers, and sales are growing more slowly than anticipated. However, Ferrari could still make a splash because its iconic brand image can power price tags that can make EVs profitable. In fact, Ferrari's first EV is expected to cost at least $535,000.
It's that powerful brand image and pricing power that make Ferrari a very unique investment opportunity.
Eye-popping margins
Those high price tags help drive astounding gross profit margins when compared to other industry stalwarts.
RACE Gross Profit Margin (Annual) data by YCharts.
Ferrari more than doubles its nearest competitors in gross margin, and that filters down to the bottom line as well. That's right, Ferrari's strong pricing power helps deliver earnings before interest and taxes (EBIT) margins double those of many competitors, and its results have been consistently much stronger than competitors over the entire past decade.
F EBIT Margin (TTM) data by YCharts. EBIT = earnings before interest and taxes. TTM = trailing 12 months.
Another aspect of Ferrari's pricing power is that it's practically company-controlled; management only allows a certain number of sales annually to keep supply less than demand, driving pricing power. In fact, during the second quarter, Ferrari delivered only 3,484 units, a modest 2.7% increase compared to the prior year. But that modest increase drove second-quarter revenue 16.2% higher, again demonstrating strong pricing power.
Another positive for owning Ferrari stock is simply that it's more recession-proof. Ferrari's target audience is generally less impacted by economic downturns and will still buy a Ferrari regardless. It's also true that many Ferrari vehicles are considered collectibles, which helps hold their value over time. The downside is that you pay a premium to own Ferrari stock and its unique high-margin auto business. The company trades at a price-to-earnings ratio of 55.
Evolution
Perhaps the biggest takeaway, especially for such a historic company as Ferrari is its willingness to evolve. So often, older and more traditional companies refuse to adapt and eventually die out. But Ferrari has not only embraced and evolved with an SUV (which it refers to as a sports car), but also has begun to outlay its strategy for EVs -- and that's great news for investors. Ferrari remains one of the best auto stocks you can own.
Should you invest $1,000 in Ferrari right now?
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Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and Stellantis and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
