I completely perceive why some persons are attracted by the obvious worth on provide when wanting on the share price chart for carmaker Aston Martin (LSE: AML). Its shares promote for pennies and are 42% cheaper than a 12 months in the past.

But the corporate has a really highly effective, distinctive model that provides it excessive ranges of pricing energy. How onerous can it’s to earn a living?

I worry Aston Martin shares might finish up going to zero. I don’t suppose they’re a discount a lot as a possible worth entice and haven’t any plans to speculate. Let me clarify why.

Being profitable’s more durable than spending it

Let’s begin with the query I posed above: how onerous can it’s to earn a living? The reply, within the case of Aston Martin, is “very”.

Take the primary three months of this 12 months, for instance. The corporate made revenues of £234m. However it made an working lack of £67m. Actually, throughout that quarter, its working loss averaged round  £71k for each automobile it offered (primarily based on wholesale volumes).

How can that be? In any case, Aston’s prestigious model means it will probably promote its automobiles for six determine sums. Clearly, the enterprise mannequin will not be working nicely. Perhaps ramping up volumes might assist, however they solely grew 1% year-on-year in the course of the quarter.

The corporate had a wide range of prices in the course of the quarter that ate into profitability, comparable to software program improvement. Nonetheless, working losses have been a constant theme since Aston Martin listed on the inventory market in 2018. I’m not assured that the enterprise mannequin because it stands is viable.

Debt can kill a enterprise

Not solely that, however working losses are solely a part of the image. Aston Martin additionally has excessive financing prices to pay on prime of its working losses (or revenue), because of a debt pile that was approaching £1.3bn on the finish of the primary quarter.

Shareholders have been repeatedly diluted as the corporate raised new cash, however that web debt was nonetheless over a fifth greater than only one 12 months earlier than. I see a threat of additional dilution. Actually, I see a threat that if the day comes when repaying or rescheduling the debt (and even the curiosity) turns into unimaginable, debtholders might take over the corporate and wipe shareholders out altogether.

That threat is simply too giant for me even to contemplate touching Aston Martin shares with a bargepole.

I could also be lacking a discount

Aston Martin’s model and distinctive automobiles actually are a fantastic asset, in my opinion. Whereas I’m downbeat in regards to the firm’s prospects, if it manages to show them round then shopping for Aston Martin shares right now might grow to be an actual discount.

The agency expects to generate free money stream within the second half of this 12 months. That’s solely a part of what I believe it must do to show its viability, but when it does hit that focus on then I believe it’s a step in the appropriate route.

Nonetheless, I stay involved that cheap-seeming Aston Martin shares might grow to be a worth entice. I cannot be investing.