Byte # 40: Why I Raced to Buy “RACE” After its Q4’25 Earnings
Dear Smart Investor,
Ferrari N.V (RACE) has been on my watchlist for some time. I’ve admired the business from the sidelines…iconic brand, disciplined management, enviable margins…but I was waiting for both a compelling entry point and fresh confirmation from earnings. After the February 10, 2026 release, the alignment I’d been looking for arrived…and I acted.
Here’s why.
A Luxury House, Not a Carmaker
It's tempting to lump Ferrari with traditional automakers, but that misses the real story. Ferrari operates far closer to a global luxury house like LVMH or Hermès than a volume carmaker like Toyota or GM.
Consider the key differences:
Controlled scarcity as strategy: Enzo Ferrari insisted "his company would always deliver one car fewer than the market demands." Ferrari sells just 10-11K cars annually on average...never cheapening the brand with volume. For context, Volvo generates 6x the revenue to earn Ferrari's operating profit level.
Structural pricing power: Ferrari raises prices annually while clients willingly pay premiums for personalization...turning customization into a profit center.
Fierce customer loyalty: As Guy Spier (Aquamarine Fund) notes, "Ferrari customers are so fiercely loyal they’ll go to the edge of town to buy one, whereas Bentley and Rolls-Royce must pay for expensive showrooms in city centers."
Elite financials: 31% ROIC and 21.5% FCF margin align with top luxury groups and tech leaders, not autos. The order book stretches to 2027.
That positioning matters when macro turns tough. Mass-market autos slash prices and fight over incentives during slowdowns. Ferrari's affluent clients maintain waitlists...demand proves recession-resistant.
Q4'25 Earnings Confirmed Everything
The latest results checked all my boxes:
Growth intact: Revenue +7% to €7.146B, industrial FCF +50% to €1.538B - validating the value-over-volume model.
Margin resilience: EBIT margin 29.5%, EBITDA 38.8% despite cost headwinds.
Clear expansion path: 2026 guidance of €7.5B revenue, ≥€2.93B EBITDA fueled by six new models and personalization tailwinds.
This wasn't a one-off beat. It's another data point in Ferrari's decade-long compounding story.
Why Buy After the Earnings Spike + October Context
Some context: Ferrari endured its worst trading day ever after October 2025's Capital Markets Day. Management outlined a more restrained 2030 plan—lower EV mix (20% vs. 40%) and slower growth trajectory—which reset sky-high expectations:
Stock plunged ~15% in one day ($490 → $390 range).
Drifted to a $333 low by February 2026.
Analysts trimmed long-term targets but kept mostly Buy ratings.
I passed on $336 (tempting margin of safety) to hear management's tone firsthand. Post-earnings, I reframed:
Has business value risen? Yes—strong execution vs. revised guidance.
Is the thesis stronger? Yes—moat, demand, pricing power all intact.
Fair premium or overpay? At $365 (30% off highs), reasonable for 10%+ growth + luxury economics.
For quality compounders, I'll pay a multiple when holding for years, not quarters.
How It Fits My Portfolio
Ferrari plays a specific role in my overall allocation:
It adds high-quality, brand-driven growth next to my more cash-flow and yield-focused positions in energy and infrastructure.
It diversifies my cyclical exposure...Ferrari’s demand profile looks very different from commodity-exposed businesses.
It aligns with my preference for companies that can self-fund growth, return capital, and still invest in their moat.
Why I Ignored the quant “Sell”
One of the nudges that almost kept me on the sidelines was a “Sell” quant rating from a popular platform, Seeking Alpha. Quant models can be useful, but they often:
Penalize high P/E multiples without fully capturing intangible moat and brand.
Focus heavily on short-term momentum and factor trends, which may not suit a long-term, business-first approach.
In the end, I chose to prioritize my own understanding of Ferrari’s economics, competitive position, and capital allocation over a one-word label.
My Simple Valuation Check
I ran a straightforward five-year DCF using an 8% required return (my hurdle for durable luxury businesses, versus 12% for higher-risk tech), 10% annual EPS growth from 2025 levels, and a terminal multiple broadly consistent with Ferrari’s historical premium range.
The result points to fair value in the mid-$400s, suggesting meaningful upside from my $365 entry without assuming heroic growth.
Notably, consensus analyst forecasts call for 7–10% earnings growth, broadly aligned with my assumptions.
This isn’t a bet on multiple expansion. It’s an underwriting exercise: if Ferrari compounds earnings high-single to low-double digits and retains its premium economics, the current price supports attractive long-term returns.
Final Thoughts (Process Over Picks)
This illustrates my real-time process:
Patience for setups (watched from $490 → $333).
Earnings as thesis test (validated, don't chase blindly).
Buy good news when long-term math works.
I hope you enjoyed today’s Byte😊 and a quick reminder: this isn’t a recommendation to buy or sell or a financial advice - it’s about revisiting the process and stress-testing whether the original thesis still holds.
Keep investing smarter,
Pooja
