Buy the Dip: Meet the Supercharged Automotive Stock That Can Beat the S&P 500 Over the Next 5 Years (Hint: It's Not Tesla or Ford)
Key Points
By intentionally limiting volumes, management is able to keep demand and prices high.
This elite company’s impressive profitability stands out amongst industry peers.
Over the past five years, the price-to-earnings ratio has been lower on very few occasions.
Investors that want to put money to work in the automotive sector might consider Tesla, given that it's an innovative and tech-driven force. Or perhaps a more traditional name, like Ford Motor Company, comes to mind.
There's another auto stock, which is trading 28% below its peak (as of Feb. 17), that is more deserving of investors' capital right now. It has still produced a monster 952% gain over the past decade.
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It's time to buy the dip, as this business could beat the S&P 500 index over the next five years.
Image source: Getty Images.
Straddling the line between car company and luxury brand
Ferrari (NYSE: RACE) operates a unique business model. Yes, it sells vehicles to consumers across the globe. It's an ultra-exclusive luxury brand, too. This means that its financial performance stands out in the industry.
In 2025, Ferrari posted a year-over-year revenue gain of 7%. It sold just 13,640 cars during the 12-month period, which is a tiny figure that highlights management's objective of capping volume in order to maintain brand strength. These figures on their own aren't driving excitement among the investment community.
However, the company reported an operating margin of 29.5% last year, which is unheard of among its peer group. And its free cash flow soared 50% in 2025.
Those profitability metrics are strong because Ferrari benefits from incredible pricing power. It just introduced its first ever electric vehicle (EV), the Luce, which Car and Driver expects will have a starting price tag of around $500,000. Despite these high prices, Ferrari's order book is full toward the end of 2027. Owning one of these machines is a status symbol.
Earnings growth will drive returns in the years ahead
In the past three years, Ferrari's diluted earnings per share climbed at a compound annual rate of 20.7%. This was despite the lingering effects of the pandemic and supply chain issues rattling the industry. I believe it's totally reasonable to expect a high-teens level of growth over the next half-decade.
Demand isn't cyclical, which provides a high floor for financial results. Ferrari's target customer is extremely wealthy, so they're less impacted by economic forces.
There's also added upside since the stock is trading substantially below its record. Shares go for a price-to-earnings ratio of 37.1. In the past five years, the valuation was cheaper on very few occasions.
The issue with Tesla is that its core business of selling EVs is struggling. And its valuation is sky-high. The problem with Ford is that it's a low-growth and low-profit company.
Ferrari stands out, and it presents prospective investors with an attractive buying opportunity.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ferrari and Tesla. The Motley Fool has a disclosure policy.