Analysis: Is Ferrari really worth more than Google or Apple? Probably not

Ferrari’s first day of trading is going to be the most closely watched initial public offering of the year.

The iconic car manufacturer is easily one of the best known luxury brands on the planet and there are few traders if any in the world’s main financial centres who have not dreamed of owning one at some point in their life.

Is it really worth $52 a share?

The answer would seem to be probably not, judging by some of the most widely used financial ratios, but that does not mean the shares cannot rise beyond that level.

Indeed, it looks like they will do just that on their first day of trading. Admittedly, however, it must be said that what follows is but a 'back-of-the-envelope' valuation.

One “rough” approach investors often use when trying to attach a value to a company’s shares is to derive an average of the valuations which applying various financial ratios yields.

To take note of, certain financial ratios are more applicable than others depending on which industrial sector the company belongs to, meaning there is a large degree of subjectivity when it comes to valuing a company.

Is Ferrari a luxury good?

Most market commentary appears to be arguing the company should be treated as a luxury goods-maker when trying to value it. Hence, it should be trading at similar financial ratios, for example, to say Prada.

That means that in terms of expected EV/EBITDA it can more or less justify a multiple of about 12.2, versus 5.9 for the global car industry. That is because the median EV/EBITDA for luxury brands is 11.2.

But is it really “worth” more than Apple?

However, a ‘back-of-the envelope’ calculation shows Ferrari is set to float at about three-and-a-half-times expected sales.

Historically, so-called ‘growth’ stocks - which tend to sport the highest valuations – can fetch between two and three times sales for the last twelve months, more if it is a smaller outfit or if it has truly exceptional ‘growth’ potential.

Of course, there are exceptions to any rule. As of Monday’s close Google was changing hands at approximately 6.93 times its 2014 sales.

Apple on the other hand was at 3.56 times historic sales by the close of trading on 22 October.

Ferrari priced at 52$ per share on Tuesday, towards the top part of the proposed range, valuing the Maranello, Italy-based firm at approximately $9.8bn.

To take note of, market commentary says the sale was quickly oversubscribed – a good indication.

Is it worth more than Google?

In terms of price-to-earnings the Italian company's stock is worth more than Google.

Ferrari is expected to debut at about 35 times a rough estimate for its earnings in 2015, whereas Google is on about 26 times profits.

So in a very rough manner, it would seem safe to say that Ferrari has been accorded a justifiable (and subjective) but nevertheless full valuation.

The fact the company’s car shipments fell by 5% in the first three months of the year would seem to underline that.

Nonetheless, what the company’s advisors will be ‘banking on’ is investors’ irrational behaviour and that can be impossible to predict.