Given how much news is swirling about this month regarding tariffs, you have likely heard about the 25% tariffs that the Trump administration slapped on all imported vehicles that began last week. On top of those steep import taxes, next month is scheduled to bring another 25% tariff on all automotive parts shipped in from outside the U.S. market.
It's a huge move, and potentially a very costly one for the automotive companies and for their customers. It has shaken the industry and sent many automotive stocks spiraling downward. Well, all except for one or two, including the often-overlooked Ferrari (RACE 1.63%).
How's it looking?
It takes only a glance at year-to-date stock prices to see how devastating the tariff announcements have been.
Data by YCharts.
Investors might have thought Ferrari would be one of the hardest hit since the 25% tariff slapped on its imported ultra-luxury vehicles would be a much bigger chunk than, say, an average mainstream $40,000 vehicle. After all, this is the car company that produces the F80, which retails at a staggering $3.9 million before options!
While that's true, investors also have to consider context. That context is that Ferrari's typical consumer doesn't really have money issues. It's the driving force behind the stock's resiliency during a recession, since those consumers are less affected by such downturns and continue buying Ferraris regardless of the economic outlook.
NYSE: RACE
Key Data Points
Also weighing in its favor is that the company focuses on very strict exclusivity, going as far to limit the number of vehicles it sells to keep demand high and prices strong. You can see the pricing strength as recently as the fourth quarter when the number of Ferraris sold increased a modest 2% but its revenue jumped 14%. The average vehicle sold cost more than $500,000.
More good news
Even better, Ferrari's outstanding pricing power filters down to the bottom line as well. Operating profit jumped 26% year over year during the fourth quarter while earnings per share jumped a significant 32%. Ferrari is a cash-printing machine, but it's also incredibly consistent with revenue gains over the years, as you can see below.
Data by YCharts.
Even the slight dip caused by the pandemic didn't last for long. Ferrari historically trades at a premium, and rarely will investors get an opportunity to buy at a discount. But even so, the company launched a $2 billion share-buyback program in 2022, which suggests management believes it may still be undervalued.
To put in perspective how powerful Ferrari's pricing and margins are, simply compare them to mainstream automakers.
Data by YCharts; TTM = trailing 12 months.
To put it bluntly, not only is Ferrari arguably the best automotive stock to own, it's potentially one of the best stocks to own, period. Over the last 10 years, the stock price has zoomed 627% higher and left the S&P 500's 151% gain in the rearview mirror.
So, when it comes to automotive tariffs, don't be surprised if the automaker once again shows its resiliency and pricing power, since it almost certainly can and will pass the cost on to its lucrative target audience. It's just one more reason owning Ferrari is a smart investment, and even a small 6% dip year to date might be an entry point.
