What’s underneath the Porsche IPO?
Porsche is going public on the German stock market today with an expected valuation of $68-$73B — separating from Volkswagen to trade as its own publicly traded company. It’s one of the worst times to go public with markets tanking and an unstable economy. But hey, it’s not our call.
The bear case: Valuation, China and control
1/ Valuation. Several analysts have questioned Porsche’s expected market value, and Quest analysts believe the valuation should be 33% less. Here’s why:
- “Porsche’s customer demand is untested against rapidly rising interest rates and high inflation pressures.”
- Exposure to China and “weak corporate governance.”
2/ Porsche is reliant on its largest market, China. The country is on shaky grounds with an ongoing property crisis and lockdown rumors. In the first half of 2022, Porsche deliveries in China fell 16%.
3/ There’s also the control issue. The Porsche family has too much, and investors have too little. While there’s no immediate impact, future decisions could be made against the interest of all investors.
The bull case: Comparing to Ferrari
Since going public in 2015, Ferrari (NYSE:RACE) returned investors 267% — more than doubling the S&P 500’s return. Now Porsche wants to replicate that success. But in its current state, Porsche is no Ferrari.
- Margins: Last year, Porsche had an earnings margin (EBITDA) of 24.5% in 2021 vs. Ferrari’s 35.7%.
- Valuation: $RACE trades at a premium given its higher profitability, luxury status and strong operations.
If Porsche can improve its profitability, investors could begin to value it closer to Ferrari — which could drive its price up.
Porsche is targeting 50% of its sales to be electric by 2025. The question is whether Porsche can improve its profitability as it transitions to electric vehicles.
Investors: Don’t buy the wrong model
After the IPO, there will be two Porsches on the stock market, so don’t confuse the two:
- Porsche Automobil Holding SE — the investment holding company of Porsche’s founding family.
- Porsche AG is the car manufacturer and the one going public.
Don’t have access to international markets or over-the-counter trading? Might be for the best.
The Joe’s Take: Luxury IPO in a down market? We’ll take our odds on the sideline. Historically, investing in companies within the first few months of their IPO has delivered poor returns. It’s often better to wait after the hype dies down.