Ford’s stock price is currently in the double digits, significantly lower than its historical peak and its competitor, General Motors (GM). This article explores the reasons behind Ford’s low stock valuation compared to GM, examining factors beyond the simple share price.
Low Stock Price vs. Cheap Valuation
It’s crucial to distinguish between a low stock price and a cheap valuation. A low stock price refers to the absolute dollar amount of a share, while a cheap valuation considers metrics like the price-to-earnings (P/E) ratio. Ford’s stock price is low compared to both Tesla and GM. Furthermore, its valuation is also considered cheap, with a P/E ratio significantly lower than the market average and even lower than GM’s.
Reasons Behind Ford’s Low Stock Price
While stock splits can lower share prices, Ford’s last split was decades ago. The primary reason for Ford’s low stock price is its historical underperformance in the stock market. Despite a healthy dividend yield, Ford’s returns have lagged behind market averages since its IPO.
Ford’s Cheap Valuation: A Deeper Dive
Ford’s stock isn’t just low; it’s also cheap based on various valuation metrics, including cash flow. The company’s projected free cash flow suggests a healthy financial position, enough to cover its dividend and potential special dividends.
However, this cheap valuation reflects underlying concerns. Ford has struggled with revenue growth, with 2022 revenues lower than those in 2000. Its transition to electric vehicles (EVs), while strategically important, has resulted in significant losses, further impacting its valuation. While Tesla’s aggressive price cuts have contributed to industry-wide pressure, Ford’s challenges extend beyond the EV market.
Industry-Wide Challenges and Ford’s Specific Issues
The automotive industry faces headwinds, including weakened demand and rising costs. Several automakers have lowered their profit forecasts for 2024, reflecting these challenges.
However, both Ford and GM present a contrasting picture, with GM recently raising its profit guidance. While Ford hasn’t updated its guidance yet, its CEO maintains that the company is not at peak profitability. Despite this optimism, Ford continues to grapple with legacy issues like recalls and warranty costs, impacting investor confidence. These recurring issues, coupled with uncertainty surrounding EV profitability, contribute to Ford’s depressed valuation.
Ultimately, Ford’s low stock price reflects a combination of factors: historical underperformance, challenges in the EV transition, industry-wide pressures, and company-specific issues. Despite these challenges, some investors find Ford an attractive option due to its dividend yield and potentially undervalued position.
