Ferrari Becomes Oversold

03:51 12/09/2017

Legendary investor Warren Buffett advises to be fearful when others are greedy, and be greedy when others are fearful. One way we can try to measure the level of fear in a given stock is through a technical analysis indicator called the Relative Strength Index, or RSI, which measures momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.

In trading last week, shares of Ferrari NV RACE  entered into oversold territory, hitting an RSI reading of 29.9, after changing hands as low as $103.85 per share. By comparison, the current RSI reading of the S&P 500 ETF ( SPY ) is 71.5. A bullish investor could look at RACE's 29.9 RSI reading today as a sign that the recent heavy selling is in the process of exhausting itself, and begin to look for entry point opportunities on the buy side.

ANSYS Simulation Technology Enables Ferrari to Race Past the Competition:

With ANSYS ANSS  engineering simulation technology behind the steering wheel, Ferrari raced past the competition to win the Manufacturers' and Drivers' World Championship titles and the Team's Trophy in the FIA World Endurance Championship (WEC).

Securing its fifth WEC constructor's title and twenty-fourth overall, Ferrari uses ANSYS computational fluid dynamics (CFD) solutions to maintain best-in-class endurance-oriented aerodynamic performance. With ANSYS, the engineers can maximize downforce, minimize tire degradation and optimize airflow around the car to keep critical components within the ideal temperature operating ranges — essential elements for outpacing competitors.

"With race times lasting anywhere from six to 24 hours, speed and reliability are critical factors for cars competing in the WEC to achieve success and see the checkered flag," said Ferdinando Cannizzo, Ferrari Competizioni GT technical coordinator. "ANSYS enables our team to quickly test multiple configurations between each lap and provides accurate insight — empowering our team to improve our speed and reliability in real time."

"Our team has worked with Ferrari for more than 20 years and we continue to be inspired by their drive for innovation and excellence," said Sandeep Sovani, director, industry marketing at ANSYS. "ANSYS simulation technology combined with Ferrari's world-class products and drivers create an unstoppable force on the track, we look forward to many more trips around the track together."

RACE Crosses Above Average Analyst Target:

In recent trading, shares of Ferrari NV RACE  have crossed above the average analyst 12-month target price of $110.20, changing hands for $110.44/share. When a stock reaches the target an analyst has set, the analyst logically has two ways to react: downgrade on valuation, or, re-adjust their target price to a higher level. Analyst reaction may also depend on the fundamental business developments that may be responsible for driving the stock price higher - if things are looking up for the company, perhaps it is time for that target price to be raised.

There are 5 different analyst targets contributing to that average for Ferrari NV , but the average is just that - a mathematical average. There are analysts with lower targets than the average, including one looking for a price of $96.00. And then on the other side of the spectrum one analyst has a target as high as $125.00. The standard deviation is $13.881.

But the whole reason to look at the average RACE price target in the first place is to tap into a "wisdom of crowds" effort, putting together the contributions of all the individual minds who contributed to the ultimate number, as opposed to what just one particular expert believes. And so with RACE crossing above that average target price of $110.20/share, investors in RACE have been given a good signal to spend fresh time assessing the company and deciding for themselves: is $110.20 just one stop on the way to an even higher target, or has the valuation gotten stretched to the point where it is time to think about taking some chips off the table?

Are Ferrari Shareholders Are At Risk?

Ferrari's stock has doubled in 2017. Ferrari's stock price has run without a corresponding improvement in its financial results.

Competition is set to increase as Tesla just surprised customers and investors with a commendable product.

Let's review the specs of the car before we delve into its implications on Ferrari (RACE).

First, Tesla indicated that its Roadster will achieve 0 to 60 in 1.9 seconds, which would make it the first production car ever to accelerate under two seconds.

Second, the Roadster will have a max speed of more than 250 mph.

Third, the Roadster is intended to have a range of more than 620 miles, which would make it the first production electric vehicle ever to break 1,000 km.

Fourth, the Roadster will be priced at $200,000 for the base model.

Let's compare these specs to Ferrari's newly announced entry-level car, the 2018 Ferrari Portofino:

• 0 to 62 mph in 3.5 seconds

• Max speed of 199 mph

• Price of $205,000

In other words, Tesla's Roadster offers nearly twice as fast acceleration and 25% higher max speed, combined with unmatched all-electric range on one charge, for less price. Quite eye-opening.

The recent run up in the stock price, without a corresponding improvement in the fundamentals, has created a pullback risk, which may be accelerated with Tesla's surprise reveal of its Roadster.

It's important to note that Tesla's announced products are only in prototype stage, and the production stage may be delayed, as Tesla investors know all too well. Ferrari investors should also keep in mind, however, that Tesla has historically exceeded the specs announced at product reveals, even if the production was delayed.

At nearly $21 billion of market cap, Ferrari currently trades at a price-to-earnings multiple of 52x, which is twice that of the S&P 500 average.

Ferrari's stock has doubled in just ten months, but its fundamentals have not improved nearly as much. On the other hand, Tesla has surprised its customers and investors with a product that breaks multiple records and places the company's offering way ahead of Ferrari's newly announced entry-level product.

This article has been provided by a Chasing Markets contributor. All content submitted by this author represent their personal opinions, and should be considered as such for entertainment purpose only. All opinions expressed are those of the writer, and may not necessarily represent fact, opinions, or bias of Chasing Markets.
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