By Panos Mourdoukoutas
Ford’s stock performance has been subdued lately despite rising vehicle sales. Analysts attribute this to the company’s lack of profitability, due in large part to its push into the electric vehicle market.
This week, the legacy company that brought the Model T automobile to the masses more than a century ago reported a 6.1 percent rise in auto sales, led by a 31.2 percent jump in hybrid models.
Yet its stock barely moved, hovering around the $10 mark, down by 16.32 percent over the past 12 months, lagging behind General Motors and the S&P 500 Index, which have gained 3.57 percent and 11.23 percent, respectively, during the same period. Over the past five years, Ford’s shares have increased by 37.6 percent, compared with 54.36 percent for General Motors and 87.22 percent for the S&P 500.
At its current price of around $10, Ford’s shares are considered attractive based on several valuation metrics.
Ford’s forward price-to-earnings ratio currently stands at 8.21, which is less than half of the S&P 500’s. Meanwhile, its price-to-book ratio is 0.9, indicating that its stock trades 10 percent below its book value.
In addition, Ford’s intrinsic value—the value of the company based on the free cash flow it is expected to generate—is $29.73 per share, according to estimates from Gurufocus.com. That’s almost three times its current stock price.
However, Wall Street’s concerns with Ford’s stock aren’t valuation but profitability and value creation, which make it hardly a bargain, according to some analysts.
Ford becomes less profitable by many metrics. According to financial and economic data platform Macrotrends, the company’s gross profit margin has dropped from around 19 percent in 2010 to around 14 percent so far this year, while its earnings before interest and taxes margin has dropped from around 10 percent to 0.2 percent during the same period.
As of March, Ford’s current return on invested capital—a measure of the returns the company earns on its investments—is 1.40 percent, according to Gurufocus.com estimates, well below the weighted average cost of capital, which stands at 3.76 percent.
Georgios Koimisis, associate professor of economics and finance at Manhattan University, believes Ford has been a classic value play, trading at relatively low price-to-earnings ratios.
“On paper, it looks good,” he told The Epoch Times via email. “However, the stock has been stuck in the $10 range for years, failing to deliver sustained capital appreciation.”
Koimisis considers Ford a “value trap” rather than a value stock.
“Its capital expenditures are high, and its margins are thin,” he said. “Even when earnings improve, the market shows little enthusiasm, suggesting low investor confidence in Ford’s long-term competitiveness.”
David Materazzi, CEO of the automated trading platform Galileo FX, provides further insight into Ford’s declining profitability and failure to meet Wall Street’s expectations.
“Ford operates on thin margins. It spends heavily to build vehicles but earns little on each sale,” he told The Epoch Times via email. “Fixed costs are high. Labor contracts limit flexibility. That’s not a formula Wall Street rewards.”
Materazzi believes the company’s push into electric vehicles (EVs) has worsened its profit situation.
Ford announced in April 2023 that it would commit more than $50 billion from 2022 through 2026 to developing and manufacturing electric vehicles and batteries. However, the company made several announcements scaling back its EV development, citing slower-than-expected demand.
In October 2023, Ford reported an operating loss, which it said was “exacerbated by EV price pressure.” Accordingly, the company said it would cut its Mustang Mach-E production and scale back investments in the EV segment.
In January 2024, the company revealed it would reduce production of its electric F-150 Lightning pickup truck at the Rouge Electric Vehicle Center in Michigan from two shifts to one, following an earlier reduction from three shifts to two in October 2023.
In April 2024, Ford announced a delay in the launch of its new electric SUV assembly plant in Oakville, Ontario, pushing the timeline from 2025 to 2027.
“Ford is losing money on every electric vehicle it sells. It’s behind on battery tech, software, and scale,” he said. “Tesla may be down, but it still controls the economics of making automobiles. Ford doesn’t have a lead in anything.”
“Wall Street doesn’t pay for volume. It pays for margins, moats, and returns on capital,” he added.
Vince Stanzione, CEO and founder of UK-based First Information, weighs in, explaining why Ford hasn’t resonated with Wall Street investors.
“On paper, the stock looks fairly valued on a [price-to-earnings ratio] of 8, and pays a decent dividend around a 6 percent yield, but that has been the only real return as the stock price has not appreciated,” he told The Epoch Times via email.
Stanzione said that despite a fairly strong global economy and U.S. subsidies for electric vehicles, Ford has failed to make “real headway.”
“As I write, it looks like the U.S. will be cutting these subsidies, which is not good news for long-suffering Ford shareholders,” he said. “It’s not that Ford makes terrible cars; it’s just that they struggle to make any real headway, and margins are thin.”
The highly debated “One Big Beautiful Bill Act”—a budget reconciliation bill that makes permanent key provisions of President Donald Trump’s tax cuts—was passed by the U.S. House of Representatives on May 22 and proposes eliminating the $7,500 federal tax credit for most new electric vehicles brought to market after Dec. 31.
Alex Black, chief marketing officer at EpicVIN, believes Ford’s problem with Wall Street is that its leadership has failed to develop a narrative of rapid growth and substantial tech-style returns to boost investor sentiment.
“They’re investing billions of dollars into EVs, but progress has been sluggish,” he told The Epoch Times via email.
“Tesla’s still ahead, and now even the Chinese are closing the gap. Throw in increasing expenses, recalls, and the truth that trucks and SUVs aren’t moving like before, and it’s easy to see why folks are being cautious. Ford is certainly not disappearing—but it’s not the hot ticket either.”
“Ford needs to secure strategic partnerships or show leadership in emerging mobility tech,” Koimisis said.
