ETFs are for the Memes (again)
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Looks like meme stocks are back on the menu, boys. This is Motley Fool Money.
Tyler Crowe Welcome to Motley Fool Money! I'm Tyler Crowe, joined by longtime Fool contributors John Quast and Matt Frankel. Today's Thursday, October 9th. We had a great show today. We're going to talk about meme stocks because there was recent news about a new ETF that's trying to capture the zeitgeist of meme stock investing yet again. Of course, we'll do stocks on our radar like we do every Thursday here. But before we begin, we actually want to start with today's news from a company you don't hear much about the news because they're a great company that tends to stay out of the limelight, and that's Ferrari. Shares of Ferrari are down about 14.8% as we are taping this after the company announced changing to its electric vehicle strategy and financial guidance that was lower than expected.
The company now projects its electric vehicles out to 2030 will be 20% of its total lineup versus the original plan of 40% of the lineup. Also, 2030 projections for its financial performance. It's adjusting down its operating profit from €3.2 billion to €2.75 billion. Just for reference, over the past 12 months, adjusted operating profit was $2.1 billion. Pretty modest growth here. Now, Ferrari's a luxury brand stock. I would say masquerading as an automotive stock. Its shares have traded at a premium to the automotive industry ever since going public, probably with Tesla being the one exception. That premium is because Ferrari is much more of a consistent performer because of luxury. With this lower projection, I'm going to toss it to both of you guys, is the stock really worth the rich market premium that it still has?
Probably not. If you compare it to a GM, for example, which is trading at six times earnings, and this is trading at something like 40 times earnings, yes, there's consistency. Yes, it's a premium brand. Is it worth eight times the valuation of the average legacy auto manufacturer, if you will? Not really. I don't think that the electric vehicle news is anything really material. They're just the latest in a long line of companies, including some of the leaders like GM that have reduced their EV targets. I wasn't surprised at that. It's really the profit projections. A Citi analyst said that this falls below their low growth case. So, it's not surprising that the market's reacting like this. But keep in mind, not only has Ferrari historically traded at a premium, Ferrari is still up by 645% over the past 10 years.
It has been an excellent performer for investors. One of the big reasons is, it was a big winner of the pandemic era of luxury surge, is what I call it. A lot of people spent money on different luxuries during the pandemic because there was a lot of stimulus, you couldn't go out and spend money. I bought a house in Orlando, for example. A lot of people bought Ferraris. You saw their sales surge during that era. It really hadn't cooled off, and we're just starting to see a delayed post-pandemic cool-off. I'm not that worried, but it does still look like an expensive stock.
Yeah, I agree with Matt here. I don't think it's quite worth what the market says it is, even still after the pullback. That's nothing against Ferrari, and that's nothing against people who really like this business. I think there is a lot to like with Ferrari's business. But any stock at the wrong price can be a bad investment. I think we can just zoom out and think a little bit about how is shareholder value created. And I think that one of the main ways that often happens is with business growth. But then you look at Ferrari and it's only expecting a 5% compound annual growth rate through 2030. That's not a huge growth rate there. Profit margin expansion is another way that shareholder value is created.
It is expecting some Ferrari, but not a ton necessarily going from a 39% adjusted EBITDA margin to a 40% one. And then, you think about capital return to shareholders. Now, Ferrari expects to return €7 billion to shareholders cumulatively by 2030.
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