Not too long ago, we advised staying on the sidelines when the Ferrari (RACE) IPO rolled onto the showroom floor.
As expected, small investors scrambled to buy. Demand outweighed supply. The stock roared to over-inflated highs on the day. And, according to Barron’s, the company should earn $1.60 a share on about $3.3 billion in sales, which would give it a P/E ratio of 35, or 3.5 times the average for other carmakers.
Compare that to General Motors, which trades with at 13 times earnings.
Ford, which trades at 17 times earnings.
And Fiat Chrysler, which trades at 19 times earnings.
With a wild valuation well above those figures, it’s just too expensive to own here. No matter how incredible Ferrari may be, it’s not worth risking money on the trade.
As the glamour of Ferrari’s long awaited stock fades, the stock is beginning to pull back, leaving the average investor holding the bag. Wait for it to get cheap. Then, we’ll think about picking it up on the cheap.