Ferrari (NYSE: RACE) has put together a winning return, with shares soaring 719% in the past decade (as of April 24).
However, investors might be discouraged by the company’s share price slipping in the past nine months. They trade 32% off their record, which might force you to call the durability of Ferrari’s success into question.
Does this luxury stock still possess the widest economic moat in the entire automotive sector?
As shares in the Italian manufacturer of supercars trade 32% below their peak, investors might start to question the company’s quality.
Ferrari (RACE 0.83%) has put together a winning return, with shares soaring 719% in the past decade (as of April 24).
However, investors might be discouraged by the company’s share price slipping in the past nine months. They trade 32% off their record, which might force you to call the durability of Ferrari’s success into question.
Does this luxury stock still possess the widest economic moat in the entire automotive sector?
Image source: The Motley Fool.
Mass market car makers aren’t good businesses
When investors think of car companies, domestic names like Ford and General Motors probably come to mind first. Foreign manufacturers, like Toyota and Volkswagen, also deserve attention.
Due to these automakers having low growth, weak profits, high costs, capital-intensive operations, and cyclical demand, a valid argument can be made that these companies don’t have moats.
But what about an electric vehicle (EV) stock like Tesla?
The Elon Musk-led company has developed significant manufacturing capabilities that should bring its costs down. And even though the company’s main focus has now shifted to robotics, investors might believe that Tesla has built a highly regarded brand in the EV market.
But its pricing power has been undermined in recent years. This shows up in its declining margin profile.
Ferrari’s success is dependent on the brand’s strength
Ferrari
Today’s Change
(-0.83%) $-2.88
Current Price
$344.93
It’s safe to say that Ferrari still has the widest economic moat in the worldwide automotive sector. And all the credit goes to its incredible brand. The Ferrari name and logo, which express exclusivity, status, and high performance, are impossible for rivals to replicate. The brand has been crafted over several decades. It can’t be recreated overnight.
Ferrari’s brand has a direct impact on the financial performance of this Italian supercar purveyor. Since management strictly emphasizes limited supply, with only 13,640 vehicle shipments in 2025, there is tremendous pricing power. Special models can command price tags in the seven-figure range. And Ferrari’s order books fill up quickly, as consumers view these cars as collector’s items.
And unlike mass market peers, Ferrari’s demand isn’t nearly as volatile. It helps that the company caters to the wealthiest people in the world who are somewhat insulated from economic shocks.
Brand strength supports incredible profitability. In the past five years, Ferrari’s operating margin has averaged a jaw-dropping 27%. This is yet another reason that it shouldn’t be grouped with the rest of the auto industry.
With the shares trading 32% off their record, as mentioned, the market is giving investors a rare opportunity to get in the driver’s seat. The stock’s price-to-earnings ratio of 34.9 is below its trailing 10-year average. I believe now is a good time to consider adding Ferrari to your portfolio.
