The stock of Ford Motor Co (NYSE:F, 30-year Financials) gives every indication of being 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 $15.97 per share and the market cap of $63.7 billion, Ford Motor Co stock appears to be 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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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Ford Motor Co has a cash-to-debt ratio of 0.30, which which ranks worse than 67% of the companies in Vehicles & Parts industry. The overall financial strength of Ford Motor Co is 3 out of 10, which indicates that the financial strength of Ford Motor Co is poor. This is the debt and cash of Ford Motor Co over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those 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 5.36%, which ranks in the middle range of the companies in Vehicles & Parts industry. Overall, the profitability of Ford Motor Co is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Ford Motor Co over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Ford Motor Co is -6.6%, which ranks worse than 75% of the companies in Vehicles & Parts industry. The 3-year average EBITDA growth is -14.8%, which ranks worse than 77% of the companies in Vehicles & Parts industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Ford Motor Co's return on invested capital is 2.94, and its cost of capital is 4.92. The historical ROIC vs WACC comparison of Ford Motor Co is shown below:
Overall, 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 77% 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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