Aston Martin shares rising wedge puts the recovery at risk

The Aston Martin Lagonda (LON: AML) share price has crawled back in the past few months. After crashing to a low of 85.95p in November 2022, the shares have more than doubled to about 173.45p. Still, the shares have plunged by more than 90% from their all-time high, giving the iconic British car brand a market cap of over 1.2 billion pounds.

Aston Martin’s turnaround

Aston Martin Lagonda went through a near-death experience in 2022 as the company’s growth slowed and as its balance sheet became stretched. In the aftermath, the firm raised cash from its core investors, including Lawrence Stroll.

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It also raised money by selling a stake to Saudi Arabia’s investment fund and Geely Automobile. Further, the company made a rights issue, which diluted all existing shareholders. That fundraising was necessary since the company had a mountain of debt worth over 1.3 billion pounds. And its losses were rising.

Aston Martin’s performance is the exact opposite of what other luxury car companies did. In Germany, Porsche went public in a relatively successful initial public offering. 

And in Italy, Ferrari continued firing on all cylinders as it made an annual profit of over 939 million euros. Its revenue surged to over 5 billion pounds, which was higher than what Wall Street analysts were expecting. The management vowed to deliver better results this year.

Aston Martin, with a reduced debt load, could continue its turnaround in 2023. This turnaround will include fixing its supply chain challenges and increasing its focus on the ultra-luxury segment. It has already proved that there is demand for these products, as its ultra-luxury DBR22 Special sold out. In its recent statement, the company addressed the supply chain issues saying:

“Supply chain headwinds already improving in Q4, now expect cash inflows from more normalised working capital dynamics towards the end of the year/early 2023.”

Aston Martin share price forecast

The recent rebound of Aston Martin is in line with what I predicted here. On the daily chart, we see that the AML share price has been in a slow bullish trend in the past few months. It has successfully jumped from 85.95p in November to near 200p. While these gains are positive, there is a major concern of an emerging pattern. 

A closer look shows that the stock has formed a rising wedge, which is usually a bearish sign. With this wedge nearing its confluence level, there is a likelihood that the stock will have a bearish breakout soon. If this happens, the next reference level will be first at 150p followed by 100p.