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