Porsche’s Race With Ferrari Is Really No Contest

When Porsche AG sold shares last year, the German sportscar maker hoped to follow in the gilded footsteps of Ferrari NV and achieve a valuation more in line with a luxury goods company rather than a metal-bashing automaker. Those dreams have begun to fray amid signs that Porsche is susceptible to an economic slowdown after all: The stock has declined around one-third since peaking in May, and now lies below the €82.50 ($90.75) offer price. An already sizable valuation gap to Ferrari has become a chasm.

Ferrari caters to the super-rich — as opposed to the merely affluent like Porsche — and is seen by investors as a safer port in an economic storm. To recover, Porsche must prioritize exclusivity and high sticker prices. Doing so may require it to forgo potential sales.

No Contest

Due to their capital intensity, cyclicality and vulnerability to technological disruption — think EVs and driverless cars — most auto stocks aren’t highly valued by investors.

Despite its bona fide luxury credentials, Mercedes-Benz Group AG trades on just five times expected earnings, for example, a derisory level that also reflects worries that the high prices automakers enjoyed during the pandemic aren’t sustainable. Porsche now sits above Mercedes on 14 times earnings, while Ferrari remains a breed apart: thanks to its high margins, resilient demand and relatively low exposure to the lackluster Chinese economy, investors currently pay an earnings multiple of almost 50 times.

What's The Right Multiple