Here's Why Luxury Carmaker Ferrari's Stock Is Racing to New Highs

A smart new strategy is propelling Ferrari (RACE) , one of the world's most iconic and legendary automakers, putting new drivers behind the wheel and profits in investors' wallets.

In fact, third-quarter earnings demonstrated how fast Ferrari's business is still growing, with a 1.5% upswing in total shipments and volume growth of 15% in a surprising market: greater China.

As a result of this global expansion, Ferrari had earnings growth of more than 20%, pushing the luxury automaker's stock near one-year highs.

Interestingly, these moves by the Italian automobile company lie in sharp contrast to what is happening with other prominent brands: Ford Motor (down 18.52% this year), General Motors (down 6.7%) and even Japan's Honda Motor (down nearly 11%).

Ferrari also pulled off a blowout third quarter.

The company's adjusted earnings before interest and taxes rose nearly 23%, to 172 million euros ($187 million). Adjusted EBIT margin, up 260 basis points, and Ferrari's industrial free cash flow, up a stunning 93.5% year over year, showed that these gains weren't superficial.

Asia outside of greater China, however, remains a difficult terrain, according to some reports

Yet Ferrari has consolidated its gains.

Since being spun off from Fiat Chrysler Automobiles at the start of the year, Ferrari has endeavored to enhance its profits by offering vehicles with a more universal appeal, rather than focusing only on expensive and limited-run models.

The excitement around the cheaper turbo V8-powered variety, called GTC4Lusso T, is projected to become a solid revenue driver, boosting sales volumes and making Ferrari's appeal more broad-based.

This new approach completely alters the classic "elitist" perception around Ferrari, addressing concerns about its niche appeal that were voiced at the time of the initial public offering.

On its way toward achieving its sales target of 8,000 vehicles this year, Ferrari's prospects for the fourth quarter, as well as for next year, look promising.

The company has also ramped up its full-year gross operating profit forecast to 850 million euros ($926 million), slightly up from the previous forecast of 800 million euros ($871 million).

Ferrari trades at an exorbitant premium of 15.58 times its enterprise value to earnings before interest, taxes, depreciation and amortization ratio on a trailing 12-month basis.

Other automakers are much cheaper. For example, Toyota Motor trades at 6.52 times, and Volkswagen trades at 8.06 times

However, given the momentum in Ferrari's business strategy, investors can expect the stock to continue its upward trajectory and to deliver further gains.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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