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Historically, automakers have been notoriously risky investments due to the cyclical nature of the industry and the slim profit margins of products. The rise of electric vehicles means the high level of competition in the industry is only going to continue. And recent data suggests a likely reduction in spending power amongst consumers.
One of the main challenges that Ford is facing is a low gross margin of 11%, which leads on to the low operating margin. Such a low margin doesn’t provide much room for discounts and price cuts, something that other companies (such as Tesla) have been doing to increase market share.
However, Ford does produce in demand products. The Ford F-Series has been America’s best selling truck 46 years in a row, and Fords 150 lightning has been America’s best selling EV truck since launch.
Overall, Ford appears to be making progress and the stock provides an attractive dividend for investors. However, the company operates in a difficult industry, has high costs as well as entrenched issues with labor unions. The next year or so maybe tricky for Ford, as higher interest rates make auto loans more expensive and consumers cut back on discretionary spending.
For these reasons I give the stock a neutral rating. But these are my personal opinions not financial advice and I have no position in Ford stock. For more detailed investing ideas, visit our website overlookedalpha.com.
Historically, automakers have been notoriously risky investments due to the cyclical nature of the industry and the slim profit margins of products. The rise of electric vehicles means the high level of competition in the industry is only going to continue. And recent data suggests a likely reduction in spending power amongst consumers.
One of the main challenges that Ford is facing is a low gross margin of 11%, which leads on to the low operating margin. Such a low margin doesn’t provide much room for discounts and price cuts, something that other companies (such as Tesla) have been doing to increase market share.
However, Ford does produce in demand products. The Ford F-Series has been America’s best selling truck 46 years in a row, and Fords 150 lightning has been America’s best selling EV truck since launch.
Overall, Ford appears to be making progress and the stock provides an attractive dividend for investors. However, the company operates in a difficult industry, has high costs as well as entrenched issues with labor unions. The next year or so maybe tricky for Ford, as higher interest rates make auto loans more expensive and consumers cut back on discretionary spending.
For these reasons I give the stock a neutral rating. But these are my personal opinions not financial advice and I have no position in Ford stock. For more detailed investing ideas, visit our website overlookedalpha.com.
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NewsTranscript
00:00 Should you buy Ford stock? Ford has been around for almost 120 years. Last year the company
00:06 sold 4.2 million cars which puts it number 6 in the world in terms of cars sold.
00:11 At a price of $12.50, the market cap of Ford is $50 billion. With $25 billion of cash and
00:17 $19 billion of debt, the company has an enterprise value of roughly $44 billion, although the
00:22 figure is slightly skewed by Ford's significant financing and leasing activities.
00:27 Debt interest expenses mean the company is not gap profitable with -$2 billion of net
00:32 income in 2022 and negative earnings per share.
00:36 That said, Ford's recent performance has been improving. Revenue grew by 16% to $158
00:41 billion in 2022. At the same time, the selling, general and administrative expenses decreased
00:48 from $11.9 billion to $10.9 billion, taking operating margin from 3.3% in 2021 to 4%.
00:56 This is impressive considering Ford reported a negative operating margin of 3.5% in 2020
01:03 on much lower revenues of $127 billion.
01:06 Although the company performed well in 2022, sentiment hasn't shifted significantly with
01:11 the share price up only 17% over the last 5 years. Include dividends however and the
01:17 return is 55% which is just a bit lower than the S&P 500.
01:22 Historically automakers have been notoriously risky investments due to the cyclical nature
01:26 of the industry and the slim profit margins of products. The rise of electric vehicles
01:31 means the high level of competition in the industry is only going to continue, and recent
01:37 data suggests a likely reduction in spending power amongst consumers.
01:41 One of the main challenges that Ford is facing is a low gross margin of 11% which leads on
01:46 to a low operating margin. Such a low margin doesn't provide much room for discounts
01:51 and price cuts, something that other companies such as Tesla have been doing to increase
01:56 market share.
01:57 However Ford does produce in demand products. The Ford F-Series has been America's best
02:02 selling truck 46 years in a row, and Ford's 150 Lightning has been America's best selling
02:07 EV truck since launch.
02:10 Overall Ford appears to be making progress and the stock provides an attractive dividend
02:14 for investors. However the company operates in a difficult industry, has high costs as
02:19 well as entrenched issues with labour unions.
02:22 The next year or so may be tricky for Ford as higher interest rates make auto loans more
02:26 expensive and consumers cut back on discretionary spending.
02:30 For these reasons I give the stock a neutral rating, but these are my personal opinions
02:34 not financial advice and I've got no position in Ford stock. For more detailed investing
02:39 ideas visit our website overlookedalpha.com