Is the Porsche IPO a Good Investment?

While soaring inflation coupled with the threat of aggressive monetary policies have weakened consumer sentiment, some discretionary sectors have the potential to thrive.

One such segment is the premium luxury vehicle sector, which theoretically is insulated from economic pressures because of the focus toward affluent customers.

Though the prospect of new listings in this space is exciting, investors should realize that even privileged clients are not completely immune to financial disruption.

Before Hollywood superstar Tom Cruise put the U.S. Navy’s F-14 Tomcat on the map through the iconic film Top Gun, he first became a conduit for sports car manufacturer Porsche AG. Eventually catapulting Cruise to global stardom, the movie Risky Business featured the automaker’s 928 model during a pivotal car-chase scene. At the conclusion, Cruise’s character uttered the hallmark phrase, “Porsche. There is no substitute.”

The follow-up line featured two words, the first of which is not repeatable in polite company. Perhaps unwittingly, it expressed the sentiment that Porsche’s rivals have no doubt blared in corporate boardrooms across the U.S., Italy and of course its home nation Germany. Crafting works of art with meticulous Teutonic precision, arguably no other automaker has effectively integrated the exhilarating with the rational.

Indeed, the power of the Porsche brand lies not just in its universal desirability but also in its unprecedented focus on the bottom line. Exclusive yet not wholly restrictive, the company occupies the viable – and therefore enviable – transitioning ground between the mundane and the extraordinary. Better yet, Porsche has the financial goods to prove it.

Even with the catastrophic impact of the COVID-19 pandemic, British enthusiast magazine Autocar reported that Porsche delivered 272,162 vehicles worldwide in 2020, a drop of merely 3% from 2019’s record shipment tally. Astonishingly, the company achieved this output despite a six-week factory shutdown because of the global health crisis.

Now that Porsche is set to launch its initial public offering (IPO) – or the first time a private enterprise distributes its equity shares to retail investors – Wall Street appears eager to get its hands on the extraordinary automaker. Here are the key data points to consider.

What Does Porsche Do?

A company that truly needs no introduction, Porsche is the manufacturer of some of the world’s most coveted automobiles. Best known for the rear-engine-mounted 911, its classic teardrop curvature is instantly recognizable by both automotive enthusiasts and casual observers alike. In fact, the aesthetic motif of the 911 is little changed from when it made its debut in 1963.

However, the sports car market has encountered several challenges over the past few decades, requiring even sector giant Porsche to adapt to the times. These days, Porsche is equally known for delivering more utilitarian rides such as SUVs and four-door sedans. Nevertheless, every car that bears the seal of Stuttgart harnesses the blood of a racing machine in its veins.

For prospective participants of the Porsche IPO, they should understand these advantages.

• Accessible exclusivity: Porsches are not cheap. Nevertheless, they’re not impossible to attain unlike the rarefied realm of exotic cars. Therefore, Porsche sells realizable dreams to enthusiasts, imbuing the brand with tremendous social cachet but also with a comforting air of familiarity.
• Flexible culture: Some auto brands may be too set in their ways, which is often the road to corporate failure. In sharp contrast, Porsche historically adapted to the pulse of the market, for instance, introducing SUVs to its lineup when it was unpopular to do so. Presently, the automaker is diving into electric vehicles with gusto.
• Pricing sweet spot: According to the company’s website, the lowest-price Porsche that customers can buy right now is the Macan SUV, which starts at $57,500. By keeping the entry point high, Porsche prevents brand dilution while still being accessible to a vast swath of luxury car buyers.

Interestingly, auto industry pundits have begun expressing concerns that established players like Mercedes Benz Group (PINK: DMLRY) and Bayerische Motoren Werke (PINK: BMWYY) have watered down their high watermark brands. For instance, the cheapest Mercedes can be had for just under $34,000 while an entry-level BMW costs a little over $35,000.

So far, Porsche has not indicated that it will chase the middle-income crowd, which in the long run could be to its benefit as a volume-centric business model can lead to intense attrition.

When is the Porsche IPO Date?

One of the most anticipated new public listings, investors wanting to jump onboard the inimitable automaker’s debut must wait for a bit. According to The Wall Street Journal, Porsche will ink its name in the IPO calendar sometime in the fall of 2022. Still, patience is a virtue and in this case gives you the opportunity to conduct robust due diligence.

First, the Porsche IPO is among the most confusing in memory. Currently, Volkswagen (PINK: VWAGY) owns Porsche AG. However, a publicly traded entity called Porsche Automobil Holding SE (PINK: POAHF) – commonly referred to as Porsche SE — controls Volkswagen. So, what’s going on here?

The roots of the auto-racing brand goes back to Ferdinand Porsche, an Austrian-born automotive engineer and the founder of Porsche AG, the firm that is actually the subject of this IPO. However, Porsche SE represents the underlying family’s interest in the automotive brand. Therefore, the SE component is the “corporate” Porsche (or more precisely the controlling shareholder) while the AG component represents the true automotive business.

Equally confusing is the nature of the upcoming IPO. Volkswagen has stated that it plans to divide the stock of Porsche AG, a 50/50 split between ordinary shares and preferred shares. Per the proposed deal, 25% of the preferred shares will be listed, which essentially means that only 12.5% of the total share allocation of Porsche AG will be floated.

Further, you should be aware that only ordinary shares will have voting rights. However, the rub is that this stock category will not be listed, remaining under Volkswagen’s control. At the same time, Porsche SE will acquire a little over 25% of the ordinary shares at a 7.5% premium to whatever is the still-to-be-determined IPO price.

What Analysts are Saying About Porsche IPO

Since the date of the new listing will be in the fourth quarter of this year, it’s impossible to render granular analyses since specific details are not yet available. However, per The Wall Street Journal, the consensus appears to be generally positive for the IPO.

Based on the valuation premiums between German rivals Mercedes-Benz and BMW on the lower end and the Italian juggernaut Ferrari (NYSE: RACE) on the higher, analysts at brokerage firm Cowen estimate that Porsche’s market value could be around 80 billion euro or roughly $84 billion.

Interestingly, Volkswagen’s market capitalization at time of writing is approximately $103.4 billion, demonstrating the value that could be unlocked through the minority IPO of just this one brand. As well, the new listing will theoretically give Porsche the capital and freedom it needs to realize its vision, which is markedly different from the high-volume-focused Volkswagen.

Nevertheless, the IPO may be a complicated affair. On one hand, the debut could be successful because issues such as inflation and the subsequent erosion of purchasing power is a challenge that’s less onerous for affluent consumers. Therefore, Porsche stock may be an insulated investment in the same frame as fine art.

But on the other hand, no one is completely immune to economic forces. Certainly, mass-produced vehicles are depreciating assets, which don’t make much financial sense during a period of rising costs. In other words, high-net-worth individuals could direct their discretionary capital toward appreciating assets or even traditional safe havens like precious metals.

Porsche Financial History

Financially, Porsche appears on track to be one of the most sustainable high-end consumer discretionary firms available. In the first quarter of 2022, the racing brand reported an 18.6% operating margin. If this stat continues to hold, this year could go down as one of the most lucrative in its recent history.

In fact, despite the upturning that the COVID-19 pandemic imposed in 2020, Porsche’s annual operating margin never slipped below 15.4%, an absolutely remarkable achievement. Therefore, investors aren’t just enamored with the Porsche brand – the business is actually delivering the goods.

Porsche Potential

For Porsche bulls, the most horsepower from the underlying IPO arguably comes from the insulation argument. For instance, the average household income of a Porsche 911 owner is $310,000, which is roughly 4.5 times the median U.S. household income.

On the flipside, a major economic downturn could negatively affect the businesses to which affluent members of society have their wealth stored. Therefore, the insulation thesis is not a perfect panacea for the troubles of our time.

Where to Buy Porsche IPO Stock

If you want to participate in Porsche’s IPO, you’ll need to know how to buy stocks – even if you want to participate on a pre-IPO basis. But before you take that step, you must sign up for a brokerage account. Below is a list of best brokers to consider.

Porsche Restrictions for Retail Investors

Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.

Porsche Pre-IPO

Although no platform has yet officially opened a pre-IPO slot for Porsche stock, those planning ahead should sign up with Freedom Finance, which intends to offer blocks of shares at the initial offering price.