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Morningstar | Wide-Moat Rated Ferrari Benefits From Substantial Pricing Power on Rich F1 Racing Heritage

We find the long-term stability of Ferrari's revenue, addressable market growth, expansive profit margin, and solid returns on invested capital throughout economic cycles to be compelling reasons to invest at the right price. However, we think Ferrari stock will regularly trade at rich, luxury goods valuation multiples. While we are not entirely averse to paying up for stocks like Ferrari that possess a wide economic moat rating and relatively stable economic profits through business cycles, we would look for opportunities to own the shares during periods when the shares are undervalued.Ferrari's heritage originates from the engineering, manufacturing, and competition racing since Enzo Ferrari founded Scuderia Ferrari in 1929 under Alfa Romeo ownership. As Enzo Ferrari said, "The Ferrari is a dream--people dream of owning this special vehicle and for most people it will remain a dream apart from those lucky few." Substantial pricing power, enabled by the brand and strategic scarcity, supports the ultra-exclusivity of Ferrari street cars. The brand's substantial pricing power also bolsters the company's ability to generate stable streams of revenue and economic returns through the business cycle.During the past 10 years, revenue growth has annually averaged 5.9% while volume growth has averaged 3.7%, demonstrating pricing power. Management's objective is to increase revenue to just under EUR 5.0 billion in 2021. If Ferrari reaches this target, annualized growth will be nearly 8% from EUR 3.4 billion reported for 2018. According to consultant Wealth-X, the forecast annual growth in population of ultra-high-net-worth individuals is 6%.While the information is not pro forma and comes from the segment reporting sections of Fiat SpA and Fiat Chrysler Automobile NV financial documents, we calculate that Ferrari's average economic profit margin (ROIC-WACC) during the past 10 years is 20 percentage points. The next three closest automakers to Ferrari's performance are Mercedes-Benz, Maserati, and Jaguar Land Rover at 14, 12, and 11 percentage points, respectively.