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Ford: An Undervalued Stock Price Concealing a Pretty Remarkable Intrinsic Value

April 04, 2014 | About:
Muhammad Bazil

Muhammad Bazil

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Ford (F) suffered a decline in February along with many other automobile manufactures during the same time period that it is now only slowly recovering from. After gaining more than 10% in January, the downward plunge seen in February hit the company pretty hard. However, while Ford more or less stagnated at zero growth during the month (and for most of March as well), other companies were hit much harder, with Toyota (TM) seeing a 10% decline and General Motors (GM) suffering almost 20% decline in the same time period.

The reason Ford fared better than its competitors this winter is largely because of the company’s success in international markets. While markets have been stagnating in the US, sales of Ford vehicles are growing remarkably fast in key emerging markets like China and India. Not as fast as the up-and-comer, Tesla Motors (TSLA), however, which evaded the February slump entirely and instead began propelling upward nearly 70% over the past three months. With a potential opportunity for a partnership in the coming months, both Ford and Tesla could end up carrying each other higher and higher.

Growth in Europe

The automobile market saw overall growth in Europe this quarter resulting in a boost to many manufacturers’ revenue. Even General Motors’ sales rose considerably in this time period, matching Ford’s approximately 12% rise in this market. However, while Ford and General Motors might be more or less neck and neck in Europe; Ford is dominating in other key markets where General Motors is not as big of a player.

Ford on Track to Meet Target Growth in China

China is quickly becoming one of the most promising growth markets for Ford in the coming years. Sales in this emerging market are already up 59% at the start of 2014 compared with the same time period in 2013. The Chinese auto market as a whole is expected to grow at least 30% by 2020 and Ford already controls more than 4% of the total market. The company has also begun to implement aggressive growth strategies and invested highly in the region in order to increase its market share in this fast growing market.

In order to secure this growth, the company has already built four new factories in China and plans to build 14 new plants around the world, including China over the coming year. Along with these new manufacturing facilities, Ford plans to launch 23 new vehicles onto the market in 2014 (more than double the 11 it released in the prior year).

Digging its Heels into the Indian Market

With India poised to become the third largest automobile market by 2020, Ford has already initiated plans for expansion in this region. Plans to increase the number of manufacturing facilities in the country as well as increase the number of vehicles it exports to this emerging market are already intended to take affect by the year’s end.

This means investors can expect to see the benefits of Ford’s aggressive business strategy very soon making the company an attractive investment particularly for enterprise investors. However, some potential road blocks lying ahead for Ford include its relatively weak market share in India (just 3% despite being in the market for more than 15 years) and its relatively low variety of vehicles sold in the region. Hopefully, Ford’s expansionist strategies directed toward India will help to change these factors and help to further spur growth in this potentially profitable market.

Conclusions

By some estimates, Ford’s stock is severely undervalued: selling at $15.47 as of March 22nd when it should be selling at about $30 per share. The company’s intrinsic value is reflected in its diluted earnings per share which have risen from -$3.60 five years ago up to $2.23 at the end of 2013. Thus, while the current stock price implies that the market is expecting negative growth from the company, its earnings per share growth over the past five years in addition to its consistent growth in cash flow from operations show that the company is ready to see meaningful growth in the coming years.

Current revenues from and increased investments in emerging markets like China and India confirm what Ford’s financial records have already been telling us and despite the depression in the stock price witnessed since the beginning of February, the company has already been proving its potential in international markets and eventually, investors will have to take notice and correct the currently deflated valuation of Ford’s stock.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

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Comments

Dr. Paul Price
Dr. Paul Price premium member - 4 months ago

$30 for Ford. What are you smoking? Zacks estimate for 2014 = $1.34 /share.

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