Why Porsche's Stock is Able to Continue Rising

Even though many people aspire to own a Porsche sports vehicle, owning the company's shares may be just as satisfying.

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Only lately have shares of Porsche (ticker: P911.Germany), the company that created the iconic 911 that has resembled a future spaceship since it first appeared in 1964, returned to the market. Following Porsche's separation from Volkswagen last year, its stock has increased by 40%.

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It operates more like a high-end brand than a regular automaker, which is why it has sped up. The price of Porsche is 20.6 times its earnings. The company it has strong business and ties to historically, Volkswagen (VOW.Germany), trades at 5.7 times profits. The ratio for Ford Motor (F) is 8.8.

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On the stock market, it is not unusual for an automobile manufacturer to pose as something else. Tesla (TSLA) is well-known for trading at 47 times profits, something like a technology business, as investors wager that being the pioneer in electric automobiles will pay out in the long run.

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The luxury goods business LVMH Mot Hennessy Louis Vuitton (MC.France), which produces exquisite leather bags, perfume, and Champagne, and trades at 25 times earnings, is more comparable to Porsche than Italian rival Ferrari.

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What they share in common is that companies cater to wealthy clients who have no concern about cost by selling them items that are really coveted. Therefore, there is room for wide margins.

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Porsche benefits from being closely connected to VW, which allows it to control expenses. They collaborate to continually develop batteries and share production facilities. By 2030, Porsche wants to have 80% of its vehicles electrified.

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According to Trade Algo, Porsche stands out "by virtue of its relatively distinctive character at the intersection of the luxury and premium markets." Because of this, it is able to "take advantage of the strong demand and higher margins seen at the upper end, while having the size necessary to seamlessly fund the technological revolution affecting the sector."

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Porsche, situated in Stuttgart, southwest Germany, has a market valuation of 102 billion euros ($109 billion) and employs over 37,000 people. It also produces the Taycan electric car, the Cayenne SUV, and various other models in addition to the traditional 911.

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Trade Algo estimates that the company is worth significantly more than its competitors. This year, shares have increased 20.7% to €114.40. Its typical price is €123.71. The stock is rated as a Buy by six experts and a Hold by another six.

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There has long been a relationship between VW and Porsche. The 1938 Beetle was created by Ferdinand Porsche, the creator of his own firm. In 1993, his grandson will succeed him as CEO of VW.

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In the first ten years of this century, the two businesses fought bitterly in the boardroom as the much smaller Porsche attempted to use its premium valuation to acquire VW, only to have the plan backfire when the market flipped, and VW ended up purchasing Porsche. In 2012, VW acquired the final shares of Porsche that were still outstanding.

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Following several years of remarkable production growth, VW floated 25% of Porsche on the stock market in October at an initial public offering (IPO) price of €82.50. One analyst who believes the shares can rise is Juergen Pieper at Metzler Capital Markets, who has set a moderate price target of €130 for the shares.

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According to Pieper, "Demand for Porsche's high-quality products is anticipated to continue very healthily." A brand that ranks very highly in the list of favored luxury labels is benefits from the segment of consumers "qualified to buy a Porsche model" expanding abnormally fast in all major regions.