The stock of Ford Motor Co (NYSE:F, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $11.41 per share and the market cap of $45.5 billion, Ford Motor Co stock gives every indication of being significantly overvalued. GF Value for Ford Motor Co is shown in the chart below.
Because Ford Motor Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Ford Motor Co has a cash-to-debt ratio of 0.31, which ranks worse than 67% of the companies in Vehicles & Parts industry. Based on this, GuruFocus ranks Ford Motor Co's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Ford Motor Co over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Ford Motor Co has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $129.1 billion and earnings of $0.99 a share. Its operating margin is -3.47%, which ranks worse than 83% of the companies in Vehicles & Parts industry. Overall, GuruFocus ranks the profitability of Ford Motor Co at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Ford Motor Co over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Ford Motor Co's 3-year average revenue growth rate is worse than 77% of the companies in Vehicles & Parts industry. Ford Motor Co's 3-year average EBITDA growth rate is -23.4%, which ranks worse than 87% of the companies in Vehicles & Parts industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Ford Motor Co's ROIC was -2.13, while its WACC came in at 2.56. The historical ROIC vs WACC comparison of Ford Motor Co is shown below:
To conclude, the stock of Ford Motor Co (NYSE:F, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 87% of the companies in Vehicles & Parts industry. To learn more about Ford Motor Co stock, you can check out its 30-year Financials here.
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