5 things to consider before buying Ferrari shares

Ferrari shares hard to get hands on ahead of IPO

Ferrari shares are seemingly as hard to come by as its new turbo-charged 488 GTB.

Investors have been clamoring to pay a rich price for a piece of the company's stock, which begins trading Wednesday. Sources told CNBC that shares in the luxury automaker are expected to price at the very top of their anticipated $48 to $52 range, and could even go to $53. That would give Ferrari a valuation around $10 billion, or more than three times last year's sales of 2.8 billion euros.

But behind the emotional pull of Ferrari, fundamental market facts seem to have gotten lost in the scarlet fever of its public offering.

Yes, Ferrari is a hugely powerful brand — arguably the world's most valuable auto brand. And yes, the wait time for its new 488 GTB or 488 Spyder is more than two years, suggesting that Ferrari has plenty of room to ramp up production when it wants to hit the throttle to deliver growth.

The mindset of eager Ferrari investors can be summed up two words: It's Ferrari. Everything else is details.

Yet Ferrari is going public at an especially fragile moment in the sports car market — and for the company itself. Here are five things investors should consider before jumping into the Ferrari IPO frenzy.

13 Ferrari cars park at Zhong Xuan House during their trip in Xiangyang on August 28, 2015 in Xiangyang, Hubei Province of China.
ChinaFotoPress | Getty Images

China: Emerging markets have been Ferrari's main engine of growth in recent years. But the economies of China, Russia, the Middle East and Latin America are all slowing, with vast amounts of wealth destroyed by stock corrections and currency declines.

In its latest SEC filing, Ferrari disclosed that net revenues from mainland China were down by 26 million euros in the six months ended June 30. It attributed the decline to a 29 percent decrease in shipments and a decrease in other sales.

Granted, China is still less than 10 percent of the company's sales. But add to that the troubles in the Middle East and other emerging markets, and there's a chance overseas demand for cars priced at $250,000 or more may be entering a slower growth period.

Competition: Wealthy sports car buyers used to have only a few choices when it came to six-figure splurges: a Porsche, Lamborghini or a Ferrari. Now, Ferrari is being challenged on all sides from Bugatti, Pagani, Porsche, Lambo, Audi — and most of all, McLaren.

The relative newcomer to the sports car market is quickly ramping up production and recently launched its 570S model, with a starting price of less than $200,000. To be sure, Ferrari owners are a famously loyal group. And for many, it's a must-have status badge of wealth.

But as the number of young wealthy people increases, there's a chance these new buyers may not have the same affinity toward the prancing horse brand — and therefore may be more likely to consider the competition.

Emissions standards: As the U.S., China and other countries impose stronger emission standards, Ferrari is being forced to adapt — in part by changing its naturally aspirated engines to turbo.

While the new turbo Ferraris, including the California T and 488 GTB, have gotten rave reviews on performance, many Ferrari owners say the engines lack the same symphonic growl and whine that they've come to love.

Of course, that doesn't seem to have hurt sales. But it remains to be seen how a new turbo-charged Ferrari will appeal to traditional Ferrari buyers.

Changing mix: One reason Ferraris have such high margins is their 12-cylinder engines, which command higher prices and yield higher profits than a V-8. Yet the company is selling far more V-8 models than V-12s.

In its filing, Ferrari said total shipments of V-12 models decreased from 29 percent to 19 percent of its total shipments for the six months ended June 30, mainly driven by lower sales of its F12berlinetta.

This could be a temporary issue. The F12berlinetta has been on the market since 2012, meaning if the brand were to refresh the vehicle, the fat profits from the 12 cylinders could return. But given the tougher emission standards, it's unclear if and when they will offer a new production V-12. Ferrari did not immediately respond to a request for comment on its plans.

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CEO question marks. How many companies have gone public without a definitive plan for who will lead the company? Media reports say Ferrari's current CEO, Amedeo Felisa, is likely to retire soon after the IPO, and no successor has been named. But reports indicate that Sergio Marchionne, CEO of parent company Fiat Chrysler and chairman of Ferrari, may also take the title of Ferrari CEO.

That would mean Marchionne would run two publicly traded companies at the same time. Or, he could step down from Fiat Chrysler as CEO and devote more time to Ferrari.

Though Ferrari did not immediately respond to CNBC's inquiry about its leadership plan, one thing is certain: Marchionne is deeply involved in running Ferrari, having ousted the previous chairman and retooling its Formula One team. And he loves their cars. As he once told CNBC, the Ferrari 458 is probably "the greatest car ever created by God."

Investors seem to be showing equal faith in the Ferrari IPO.