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Stock Strategist

Ferrari's Pricing Power Is in Overdrive

Between its brand image and its scarcity, this automaker is in the driver's seat.

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We think  Ferrari's (RACE) shares, much like its cars, will regularly trade at rich, luxury goods valuations. We find the long-term stability of this automaker's revenue, addressable market growth, expansive profit margins, and solid returns on invested capital throughout economic cycles to be compelling reasons to invest at the right price. While we are not entirely averse to paying up for stocks like Ferrari that possess a wide economic moat and relatively stable economic profits through business cycles, we would look for opportunities to invest in the shares when they are undervalued.

Ferrari's heritage is in the engineering, manufacturing, and fielding of race cars since Enzo Ferrari founded Scuderia Ferrari in 1929 under Alfa Romeo ownership. Substantial pricing power, enabled by the brand and strategic scarcity, supports the ultra-exclusivity of Ferrari street cars. Pricing power also bolsters the company's ability to generate stable streams of revenue and economic returns through the business cycle.

Richard Hilgert does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.