• Decent margins and consistent earnings lay a solid foundation
• Drop in profits and rising costs in a challenging year 2024 weigh down on the overall performance
• Continuously high expenses further reduce the appeal and financial agility of the company

In this article we are going to perform a business health analysis of Porsche using our custom scoring model to assess whether the company presents an appealing opportunity for blue chip value investors that are looking to buy great businesses at great prices.

“The brand for those who follow their dreams.”

Dr. Ing. h.c. F. Porsche AG, commonly known as Porsche (P911.DE), is a German luxury automobile manufacturer headquartered in Stuttgart. Founded in 1931 by Ferdinand Porsche, the company has built a legacy of high-performance sports cars, SUVs, and electric vehicles. Porsche is a subsidiary of Volkswagen Group, with a strong brand identity centered on engineering excellence, innovation, and motorsport heritage. The company’s flagship models include the iconic 911, the Cayenne SUV, and the fully electric Taycan. With a growing focus on electrification and sustainability, Porsche is investing heavily in battery technology and synthetic fuels to meet evolving market demands. As a premium automaker with robust financial performance and ambitious plans, Porsche remains a key player in the luxury automotive and EV markets.

Margins: 3 of 5 possible points

Porsche had a median gross margin of 27% in the last four years with a moderate amount of fluctuation, which is a great result for a car manufacturer but rather mediocre compared to other industries. The median net margin over the same four year period was 12%, but saw a steep decline to 9% in 2024. In that last year:

• Revenue decreased by €450m (-1%)
• Cost of revenue grew by €830m (+3%)
• Operating costs grew by €350m (+8%)

As a result, operating income declined from €7.1bn to €5.5bn (-22%), leading to a reduction of net income by €1.6bn (-30%) .

Earnings: 2 of 4 possible points

Porsche had consistent earnings between €3.6bn and €5.2bn in the last four years. From 2021 to 2023 net income was growing from €4bn to more than €5bn, but then dropped to €3.6bn in 2024 due to declining revenue and increasing costs. The return on equity has a decent median value of 21% over the last four years. However, we observe quite a lot of variation from year to year, ranging from a high value of 29% in 2022 to a low of 16% in 2024. The changes in earnings are one factor, but simultaneously the levels of stockholder’s equity have fluctuated strongly and added to the volatility of the annual return on equity. For instance, even though earnings were very comparable in 2022 and 2023, equity grew from €17bn to €21bn, thereby dragging down the return on equity from 29% to 24%.

Expenses: 1 of 4 possible points

To assess expenses we are going to look at two ratios: SG&A expenses as a percentage of gross profit and capital expenditures as a percentage of earnings. The absolute SG&A expenses were between €3.5bn and €5bn during the last four years and were growing in lockstep with gross profit most of the time. As a result, the expense rate was relatively stable with a median of 40%. Again, last year with the decrease in revenue and further increase in costs is the outlier with an SG&A expense rate of 48%. However, that is still a good level: We would consider values below 70% as good performance and values below 30% as great performance.

As can be expected for a car manufacturer, capital expenditures are quite high relative to earnings. Porsche has a median rate of 78%. That rate was nearly constant for the period 2021 to 2023 and only surged in 2024 due to the decline in earnings. Nevertheless, even the level of the previous year’s would be above what we are looking for in an investment: Ideally, companies that we want to invest in would have a capital expenditures to earnings ratio of 25% or less. When a company is forced to use large amounts of money every year in order to keep its business running (e.g. purchasing vehicles, machines or other necessary equipment) those expenses pose a financial risk. In good years, the company may well be able to pay all of that out of its earnings. However, when earnings are too low to cover these expenses, the company needs to resort to debt financing or eat into its cash reserves. And new debt plus the interest ultimately needs to be paid back one day with future earnings.

Debt and Equity: 4 of 6 possible points

Porsche’s retained earnings have been growing steadily in recent years, effectively doubling from €9bn in 2021 to €18bn in 2024. On an annual basis that would correspond to a solid growth rate of 22%

When we compare the total liabilities of Porsche to its equity we find that the median ratio has a decent value of 1.3, and with the exception of one outlier in 2022 it has stayed close to that value. We get a similar value for long term debt put in relation to earnings: The median over the last four years is 1.2 with a high value of 1.7 in 2024.  For this ratio a value below 4 is desirable because it means a company could pay back its debt with less than four years of earnings.

Verdict

A company with solid performance but not a preferred choice for value investors seeking to build a portfolio of great businesses.

Using our custom scoring model, Porsche achieves 10 out of 19 total points, giving it a score of 53%. From the 80 companies that we are currently monitoring, 45 achieve a higher score. The company shows acceptable performance on margins and would have scored well on earnings if it wasn’t for last year’s performance drop. The expectedly high expenses further reduce the total score. It remains to be seen if the company can turn around to previous performance levels or if it will face an ongoing challenge from systemic changes in the industry. The full table with performance metrics and scores is shown below.

Performance indicator	Metric	Value	Score
Gross margin	Median	27.4%	1/2
Gross margin	Coefficient of variation	4.7%	1/1
SG&A expense rate	Median	40.0%	1/2
Net income	Growth	-2.5%	0/1
Net income	Consistency	yes	1/1
Net margin	Median	11.8%	1/2
Long term debt to earnings ratio	Median	1.24	2/2
Total liabilities to equity ratio	Median	1.33	1/2
Retained earnings	Growth	21.8%	1/1
Share buybacks	Existence	no	0/1
Return on equity	Median	20.7%	1/2
CAPEX to earnings	Median	-77.5%	0/2
Total			10/15

Disclaimer: The content on this page is for informational and educational purposes only and does not constitute financial, investment, or trading advice. All opinions expressed are solely those of the author. There are risks associated with investing in securities, including the loss of invested capital. Past performance is not a guarantee or predictor of future results. The author is not responsible for any losses incurred as a result of the information provided.