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Ferrari’s shares have experienced a sharp drop recently, falling approximately 23% in the past week and over 20% in the last month. Such volatility can make it feel like the narrative around the stock has shifted suddenly. However, when looking at the longer term, Ferrari shareholders have still seen gains exceeding 100% over the past three years, reflecting the brand’s enduring strength and appeal.
Historically, Ferrari has commanded a premium valuation due to its prestigious brand and growth potential. But concerns over global interest rates and the demand for luxury goods have led investors to question whether that premium remains justified.
Traditional Valuation Metrics Paint a Mixed Picture
Ferrari’s valuation looks expensive on many classic measures. In fact, the company appears undervalued in just one out of six standard valuation checks. This discrepancy suggests that the current stock price might not fully align with the company’s fundamental financial profile.
The Discounted Cash Flow method calculates intrinsic value by estimating future free cash flows and discounting them to today’s value. Ferrari’s latest reported free cash flow stands at roughly €1.3 billion, with analyst forecasts expecting growth to around €1.5 billion by 2026 and approximately €1.9 billion by 2029.
Applying a two-stage DCF model, the intrinsic value per share is estimated at €93.19. However, Ferrari’s current market price exceeds this estimate by more than 300%, implying the shares may be overvalued relative to their expected cash flows.
Ferrari’s P/E ratio is significantly higher than the automotive industry average. While Ferrari trades at roughly 47.6 times earnings, the broader sector’s average P/E is closer to 18. This gap indicates that investors are willing to pay a substantial premium for Ferrari’s earnings compared to its peers.
Why Ferrari’s Story Is More Complex Than Numbers Suggest
Although traditional valuation tools highlight potential overvaluation, Ferrari is not an ordinary car manufacturer. Several qualitative factors contribute to its unique market position.
Ferrari deliberately limits production to maintain exclusivity, enabling the company to command high margins on each vehicle sold. This scarcity model is a critical component of Ferrari’s appeal in the luxury market.
The company typically maintains a full order book, providing predictable revenue streams even during economic uncertainty.
Recently, Exor, the Agnelli family’s holding company, reduced its Ferrari stake by 4%, raising about €3 billion but retaining significant voting rights to ensure governance stability. Proceeds from this sale are partly allocated to a €1 billion share buyback, which may support future earnings per share.
Challenges in Electrification and Growth Guidance
Ferrari has scaled back its electrification targets, reducing the share of fully electric models in its 2030 lineup from 40% to 20%. Furthermore, its profit growth guidance for 2030 was seen as conservative, triggering a market sell-off with shares dropping approximately 15% after the announcement.
Valuation Models Are Only Part of the Picture
Ferrari’s recent stock price volatility underscores how sensitive premium luxury brands are to changing macroeconomic factors and investor sentiment. While classic valuation frameworks suggest the stock is priced richly, Ferrari’s brand strength, limited production approach, and robust order book provide important mitigating factors.
