18.03.25 - Casino: gambling and (over)speculation

A European company announced this morning ambitious targets for 2025, aiming for a year-on-year revenue increase of at least 40% and an adjusted EBIT margin exceeding 20%. Based on its previous year's revenue, the company projects EUR 60 million in revenue for 2025.

In 2024, the company achieved revenues of EUR 41.7 million, up from EUR 38.1 million the year before. Despite these positive growth figures, the company's current market capitalization stands at over EUR 1.3 billion.

60 million revenues vs. EUR 1.3 billion market cap!

The company is Steyr Motors AG, engaged in the defense sector, currently en vogue. The company is a manufacturer and distributor of diesel engines for heavy-duty vehicles, boats, and generator sets.

Markets: German DAX Index is pushing toward all-time highs, driven by news of a debt-financing package aimed at stimulating the economy and bolstering military defense efforts.

My view: To put this numbers into perspective: if Nvidia were valued at similar revenue-to-market cap multiples, its share price would be around USD 249. However, Nvidia’s share price is trading around USD 120 this afternoon.

While Steyr Motors AG benefits from operating in the currently booming defense sector, this valuation appears overly speculative. The stock of Steyr Motors is bought blindly without raising concerns about its valuation, just on hope to benefit from current rally.

Stay away from such speculations. The recent surge in defense stocks and European markets seems to be heavily reliant on optimism and capital inflows, much of it likely reallocated from US stocks. Valuations appear unsustainable without corresponding fundamental growth.

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