Porsche and its billion-dollar luxury moat

I've owned a lot of cars over the years, beginning with a rusted-up Nissan that cost roughly $500. I was heading to college, and I needed something that would get me from Point A to Point B.

That Nissan was what I could afford.

I got to transition to a used Audi the following summer – a trusty car that lasted me the rest of the way through school and into my professional real estate career. Though when I got my first big commission check, I moved on to a Jeep Cherokee.

Next up was a pre-owned BMW and then a Mercedes-Benz once my developer business began taking off. But these days?

These days, I’m all about my Porsche Panamera.

Four out of six of those vehicles are German made, something I can’t help but appreciate. That first Audi of mine served me well, and I got a lot of reliable use out of my BMW and Mercedes-Benz as well.

Though I have to say…

After a few years behind the wheel of a Porsche, there’s no doubt it’s one of the finest vehicles I’ve ever owned. The engineering and craftsmanship alone are phenomenal; and the way it handles is unforgettable.

Put all three of those elements together, and you don’t just have a means of transportation. You have an experience.

According to many investors today, that experience alone is worth backing. But as for me, I think Porsche’s (P911.F) stock needs much more of a test drive first.

I’ve written a few times now about globally recognizable brands, from Nike (NKE) to Starbucks (SBUX) to McDonald’s (MCD). And Porsche fits into this category as well…

All the way down to its recent financial fall from grace.

[Editor’s Note: Porsche AG (P911.F), the publicly traded sportscar manufacturer, is not the same thing as Porsche Automobil Holding SE (PAH3-DE in Germany; POAHY in the U.S.). The latter is a family-controlled investment holding company with substantial ownership interests in Volkswagen and Porsche AG.]

Its revenue declined 9.5% to €36.27 billion in 2025. Its operating profit crashed from €5.64 billion to an abysmal €413 million. And its operating margin also plummeted from 14.1% to 1.1%.

As for deliveries, those were down 10.1% to 279,449 vehicles.

To be fair, there were about €3.9 billion worth of extraordinary expenses at play last year, such as restructuring, battery-related costs, and tariffs. Even so, I think it’s safe to say that Porsche’s showing was something less than ideal thanks to:

So CEO Michael Leiters, who just took over in January, has quite the situation to navigate.

Fortunately, he seems to have a great solution in his recently unveiled Sportwagenschmiede '35 plan. It centers around increasing each vehicle’s economic value instead of the company’s overall unit sales.

By reducing model variants by around 20%, Leiters hopes to increase volume per remaining variant by 30%. He’s also seeking to cut development costs by as much as 20% for future model lines and management positions by 40%.

That way, Porsche can lower its yearly breakeven point to below 200,000 vehicles, which would protect its pricing standards.

The company also wants to expand into higher-margin categories with more exclusive models. This includes introducing a mid-engine super sportscar platform that goes above and beyond its legendary 911 series.

Another area Porsche wants to work on is customization through its Sonderwunsch program, which gives wealthy customers the chance to intensely personalize their vehicles. The point, once again, is to increase revenue per customer instead of its customer pool.

People are noting how Porsche’s new playbook is very much like the much more expensive Ferrari’s (RACE).

That Italian automaker generated around €7.15 billion of revenue last year with an operating profit of about €2.11 billion. And this with an operating margin of nearly 29.5%...

From just 13,640 vehicles sold.

In which case, as evidenced by the chart below, Porsche generated far less operating profit from more than five times the revenue intake.

The differences are remarkable, with BMW (OTC: BMWKY) and Mercedes-Benz (OTC: MBGYY) trading at typical automotive multiples. Volkswagen (OTC: VWAGY) trades at an even deeper discount thanks to its capital requirements and operating challenges.

Porsche trades at about 3x its German luxury competitors’ forward earnings multiple. Yet it’s still nothing compared to Ferrari, which pulls off enormously superior results specifically because it operates such an exclusive brand.

Its reputation proceeds it, both in sales and shares.

In fact, the difference is even more intense when talking about price-to-sales comparisons. Porsche trades at 1.1x revenue, while Ferrari trades at 9x.

Don’t think that automatically makes the former cheap though. Investors have already priced in Porsch’s proposed recovery, including management’s medium-term goals such as:

At the midpoint of Porsche's medium-term revenue target of €43 billion – and assuming a 12.5% operating margin – the company could eventually generate €5.4 billion in annual operating profit.

That's more than 13x its depressed 2025 operating profit!

But before you step on the gas here, it’s important to recognize that these figures represent a potential outcome around 2030–2031. Not management's guidance for 2026 or 2027.

Don’t get me wrong. I do understand the appeal when even a 10% operating margin could result in €4.3 billion. However, again, all these figures are management’s expectations, not anything actualized.

Porsche still has a lot of problems it needs to address in the meantime.

Plus, operating profit isn't net income and net income isn't free cash flow. So even if Porsche achieves its high-end 15% operating margin, that doesn’t make it worthy of Ferrari-like earnings multiples.

Not when Ferrari’s operating margins are so much greater. And not when Volkswagen has controlling ownership of Porsche, which complicates its corporate governance and limits shareholder input.

The bearish case for Porsche is that it continues to struggle with China, tariffs, and product execution. Margins would likely remain below 8%, as a result. And reasonable investors would have to start valuing it like a conventional premium automaker.

A better but still base case would entail Porsche restoring operating margins toward 10%–12%. Cash conversion would improve, and it would deserve its meaningful valuation premium over BMW and Mercedes-Benz.

Then there’s the bullish outcome, with Porsche hitting its high-end 15% operating margin expectations. In this scenario, the company would successfully expand customization, launch prestigious models, and achieve sustained pricing power.

But even then, the stock is already trading at around 23x forward earnings. So the margin of safety is slim at best – especially when Porsche itself currently expects something closer to the lower end of its guidance.

I can and do admire the cars it makes. I enjoy driving my Panamera through winding country lanes, the superior feel of its braking system, and the subtle purr of its engine.

Porsche has the right to charge more for its vehicles because they’re made for so much more than just getting from point A to point B. I think that’s just the German way of doing business.

Even so, it has a lot to prove before I can say the same thing for its stock.

Mind you, unlike some, I’m not looking for Porsche to be the next Ferrari, business-wise. I just need it to become a better, stronger, more profitable version of itself.

I do think the company’s turnaround strategy is feasible. But the stock just isn’t priced low enough to make that belief worth acting on .

I need to see either actual results or a cheaper entry point before I act on Porsche. And until one (or both) of those happen, I’m driving by this opportunity altogether.

Happy SWAN investing,

Brad Thomas
Editor, Wide Moat Daily