Recent Buy – RACE

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A quick update on a recent purchase in my portfolio. This time, another new position in my portfolio.

As I read and learn more about investing and valuation models, I have come to realize that paying higher attention to Return on Invested Capital (ROIC) (and other similar metrics such as ROE, FCF etc) and qualitative aspects of a company present a better probability of finding compounding machines. A good read on this topic is a blog post from Intrinsic Investing about finding the next ROIC machines. As outlined towards the end, investors should look for companies that have economic moats, owner-operators, intrinsically understandable & sound business model, and value accretive to all stakeholders. I believe this new addition to my portfolio checks all those boxes and is a good candidate for a long term compounder.

I initiated a new position in Ferrari N.V. (RACE) with 25 shares @ $157.30. Ferrari barely needs any introduction as it is one of the world’s most recognizable & adored brands. I initially ignored it a couple of years when the company IPO’d after the Fiat spinoff. But the more I read about it, the more it made sense as has all the markings of a long term compounder investment.

Ferrari has a lot going for it: a global brand recognition, a seemingly endless demand, strategic scarcity & exclusivity creation, pricing power etc. Some analysts have also floated the idea of Ferrari as a recession-proof company — the reasoning being that it is to be viewed as luxury goods rather than other auto company (it certainly trades at a luxury multiple on the market). The customers are the ultra-rich, who aren’t too affected by a recession, or so the theory goes. While I agree that it is not to be treated as a regular auto company, I would still take the recession-proof point with a grain of salt.

Nevertheless, instead of rehashing the long thesis, I will point to a few of good reads outlining the case for investing in Ferrari:

What are you thoughts on the purchases above. Leave a comment below.

Full Disclosure: Long RACE. Our full list of holdings is available here.

5 thoughts on “Recent Buy – RACE

  1. Interesting buy! I never thought that Ferrari is a publicly traded company. Luxury car makers make a huge markup on their cars and the sales for Ferrari cars are increasing each year. The lambo is catching up though, as it’s becoming a more popular car among millionaire youtubers. Good luck!

    • Yeah its not your traditional dividend growth stock, but they did announce a raise in dividend lately. I am not even considering the dividend on this one — I think the current yield is like 0.5% and I will be subject to withholding taxes too, since its an Italian company.

      Ferrari started trading in 2015 after it was spun off from FCAU.

      R2R

  2. I am going to check out the book you mentioned, I think you may like Acquirer’s Multiple talks about similar return on invested capital and EV. Takes the magic formula a little bit deeper.

    As far as RACE I didn’t know they were public! Looking at their metrics they are interesting – they match that ROIC type stuff but the traditional valuation they are way off.

    • Yeah, from a traditional valuation model it appears pretty expensive. Lets see where this goes — I have a starter position and hopefully there will be a pullback for me to add more.

      Acquirers Multiple has been on my list to check out…will see if I can pick it up soon.

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