This Luxury Brand Is Undervalued

Richard Hilgert: Wide-economic-moat-rated Ferrari trades on the New York Stock Exchange and the Milan exchange under ticker RACE. The stock currently trades at a 15% discount to our fair value estimate, which gives it a 4-star rating. This company has a wide economic moat because of the very strong, highly recognizable brand that comes from Ferrari, and that comes from its Formula 1 racing involvement for many, many years--a very rich heritage there.

The company does have negative point to it out in the Street currently where some analysts are calling this an automotive company that sells to the wealthy population. However, to us, calling Ferrari an automotive company is like calling Tiffany a glass company. 

This company enjoys gross margins in excess of 50%, EBITDA margins in excess of 25%, and returns on invested capital in excess of 20%. Very much like a luxury goods company not at all like an automotive company. Plus, annual volume has grown at 4% rate while revenues have grown at a 9% rate. An automotive company wouldn't be able to more than double its revenue growth over its volume growth if it was just an automotive company.