Ferrari (NYSE: RACE) stock is off to the races! Gaining an impressive 52% over the past 52 weeks, shares of the Italian sports car maker have outperformed the S&P 500 by a factor of two already.
But one analyst thinks that now it's time to sell.
Analysts at Citigroup downgraded Ferrari stock to "sell" on Monday, setting a new target price of 329 euros per price (about $357). Curiously, that's actually 7% above Citi's old target price on Ferrari stock. And yet, the analyst seems deeply pessimistic about Ferrari shares and thinks you should sell today. Why?
Is Ferrari stock a sell?
Citi's analysts make no bones about their primary concern about Ferrari: This is a clear-cut valuation call.
Ferrari has raced past Citi's old price target, you see, helped in part by a powerful earnings report last month. Citi acknowledged the earnings beat and decent guidance today with a higher price target, but the analysts still think the stock costs far too much at a share price of 12 times trailing sales and 57 times forward earnings, as StreetInsider.com reports today.
Now admittedly, Citi could be wrong about this and even admits it is wrong: "We understand that in equity markets that are now more concentrated in quality stocks than ever, Ferrari could easily run further, and we may well be wrong in our timing." It's also worth highlighting that Tesla stock has worse profit margins than Ferrari, yet sells for a forward P/E ratio of 65.
That may, however, be more of an argument against buying Tesla than for buying Ferrari stock. And Ferrari bears could just as easily point out that Ferrari's profit margin is only 3.5 times as big as General Motors', but Ferrari's stock is 10x more expensive on a P/E basis.
Comparisons aside, what it comes down to is this: Ferrari stock costs 57 times earnings. Its projected long-term growth rate is only 15%, and its dividend yield is a miserly 0.6%. Citigroup is right that the stock costs too much. It's time to "sell" and take your winnings.
Should you invest $1,000 in Ferrari right now?
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
