Can Porsche Stock Rival Ferrari? Investors Aren't So Sure: 'It Is The Opposite Of What You Want From A Luxury Company'

Porsche AG POAHY investors are grappling with a reality that is far from the supercar stock they had envisioned when the company was spun off by Volkswagen AG VWAGY in 2022.

What Happened: Bloomberg reported on Tuesday that the investors’ optimism has been dampened by a series of setbacks, including a decline in the company’s market value and a decrease in its price-to-earnings multiple.

The company’s market value has decreased by about a fifth since the beginning of last year, bringing it closer to that of its former parent, Volkswagen AG. This is a significant shift from the initial €40 billion ($43 billion) gap.

"You thought you were buying into a business that was stable and improving, and it turns out that's not the case," said Jefferies analyst Philippe Houchois.

"The question is, when do we start upgrading numbers?"

China, historically Porsche’s largest market, has experienced a downturn, and production issues have affected the rollout of crucial models, including the electric version of the Macan SUV.

These challenges have led to a decrease in Porsche’s price-to-earnings multiple, which is now less than a quarter of Ferrari’s. The company has also predicted that its 2024 sales volumes will likely remain flat.

Bernstein automotive analyst Daniel Roeska quipped, "Porsche is becoming a cyclical stock that is dependent on the model cycle — it is the opposite of what you want from a luxury company."

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Why It Matters: The recent struggles faced by Porsche are in stark contrast to the high expectations that accompanied its IPO. The company’s valuation was initially set at a forward PE ratio of about 20, significantly higher than Volkswagen’s PE ratio of below 5.

Despite an initial rally in the stock, Porsche’s valuation has since slumped, leading to investor disappointment. The company’s reliance on macro-economic forces and its limited options for dealing with a slowdown in China have further contributed to this disillusionment.

However, there is still hope for Porsche investors. The stock’s decline has created an opportunity for it to outperform Ferrari over the next 12 months, with the average price target of analysts showing a potential 34% gain.

The investors’ sentiments appear at a time when Porsche is set to reveal its upcoming electric Macan in Singapore on Thursday. The new model, which has undergone significant enhancements, represents the company’s first step in electrifying an existing product, aligning with its strategy to innovate without sacrificing brand identity.

Head of Design Michael Mauer emphasized that the electric Macan maintains Porsche’s signature design language, ensuring it remains recognizable as a Porsche while embracing its electric identity.

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