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There's a warning for investors in Ferrari's furor

Sergio Marchionne, Chief Executive Officer, Fiat Chrysler Automobiles is viewed next to a Ferrari after ringing the Closing Bell on the floor of the New York Stock Exchange (NYSE) on October 13, 2014 in New York City.
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Sergio Marchionne, Chief Executive Officer, Fiat Chrysler Automobiles is viewed next to a Ferrari after ringing the Closing Bell on the floor of the New York Stock Exchange (NYSE) on October 13, 2014 in New York City.

The excitement surrounding Ferrari's flotation on the New York Stock Exchange might have revved into top gear, but a handful of European analysts aren't getting too carried away.

The iconic prancing horse marque is being spun-off from parent Fiat-Chrysler Wednesday. The book has now closed with approximately 9 percent stake being sold. This equates to 17.2 million shares, at $52 a share, which values the company close to $10 billion.

Jim McCaughan, CEO of Principal Global Investors, told CNBC that it's likely to be a successful initial public offering (IPO) but was cool of the idea of any personal involvement.


"Clearly (there's) a high valuation, and something of a scarcity premium. Our, generally quite value oriented, portfolio managers are not very enthusiastic," he told CNBC via email.

The head-scratching for many traders and investors is whether Ferrari is being priced as a luxury brand or simply as a high-end automaker. The Italian company is globally known for producing top of the range sports cars and has decades of success on the race track.

However, this valuation quirk opens up some key questions on its price-to-earnings ratio, a popular metric used by analysts to gauge the merits in owning a stock.

Angelo Meda, head of equities for BANOR SIM, explained at $52 a share, the IPO valued Ferrari at around 14 times earnings before interest, taxes, depreciation and amortization (ebitda). This puts it on medium ground between automakers like BMW, that have lower ratios, and luxury firms like Hermes and Cucinelli, which have higher ratios.

Meda is bullish on the IPO and believes that shares could shoot to $65 with mainly retail investors looking to own the Italian car firm. But, with Fiat-Chrysler (FCA) looking to spin off its remaining 80 percent stake in the first quarter of next year, he stressed that it "could create some short-term selling pressure." The Ferrari family own the remainder of the shares in the company.

"Institutional investors will wait for the spin-off from FCA," he told CNBC Wednesday.

There was also another concern from Michael Hewson, chief market analyst at CMC Markets. He noted that the flotation would be funding investment into Fiat Chrysler's' growth plans.

"(This) means the cash raised won't be going back into the newly floated company," he said in a morning note on Wednesday.

"This could be a problem, and while the appeal of owning a piece of such a marque or luxury brand has its obvious attractions, which explains why the IPO is oversubscribed, one can't help feeling what the advantages of owning the shares would be to a potential investor."