Is Ford a Millionaire Maker?
Let's face it. A winning outcome for many long-term investors is probably to generate incredible returns from the stocks they own. Perhaps getting to a $1 million portfolio is part of the plan.
Some of the world's most dominant enterprises have surely done this for their shareholders. But investors might be wondering if a nearly 122-year-old Detroit car maker can get them to the promised land.
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Is Ford (NYSE: F) stock a millionaire maker? To answer that question, let's look at some key factors that can impact returns.
Growth
All else equal, businesses that are able to register outsized growth are in a better position to produce strong stock gains. Unfortunately, Ford doesn't fall into this category.
Revenue in 2024 totaled $185 billion. That figure was up 28% compared to 10 years before, translating to a weak 2.5% compound annual rate. This gain is about in line with U.S. GDP growth, which is a very troubling sign.
It's not necessarily Ford's fault; the auto industry is very mature. Car unit sales volume increases very slowly from year to year.
The introduction of electric vehicles (EV) isn't driving a demand surge. Ford's model e revenue tanked 35% in 2024. Weak trends resulted in the leadership team delaying $12 billion in EV-related investments. This segment posted a worrying $5.1 billion operating loss last year.
If we look ahead, it's going to be the same story. According to Wall Street consensus analyst estimates, Ford's revenue in 2027 will be just 4% more than last year.
Profitability
Investors will prefer to own businesses that are able to report healthy margins and, in turn, solid profitability. To its credit, Ford is able to generate consistent net income. But that's where the positives end.
The company's bottom line doesn't give shareholders much reason to cheer. Ford's operating margin in the past five years has average a measly 2%. It hasn't shown the ability to expand, either, indicating no economies of scale.
This shouldn't be surprising. For starters, Ford has huge expenses for input materials and labor. And it must constantly invest heavily in manufacturing capabilities. In other words, there are high costs and capital expenditures needed just to maintain its competitive position, let alone try to grow.
Making matters worse is the low return on invested capital (ROIC) of just 3%. This is significantly below the average ROIC of 10% for the S&P 500 index. Companies like Ford, whose ROIC is probably much lower than its weighted average cost of capital, don't possess an economic moat. They require more and more capital, which doesn't increase the company's intrinsic value.
Valuation
Of course, it could make sense to buy a stock if the valuation is dirt cheap. As of this writing, Ford shares trade at a price-to-earnings ratio of 6.4. Any way you look at it, that's a very low valuation. The S&P 500 trades at a multiple of 25.8, four times that of Ford.
The low valuation creates a meaty dividend that currently yields 6.47%. This might be too hard to pass up, especially if receiving income every three months from the stocks you own is a top priority.
But in my opinion, Ford is best kept out of one's portfolio. There's no reason to believe it can outperform the broader index. In the last decade, Ford's produced a total return of negative 3%. Think about that. You would've lost money owning the company.
That type of disappointing track record doesn't instill confidence that this stock is a millionaire maker. Unless growth gets supercharged for some reason, or management is somehow able to boost ROIC and profitability, Ford doesn't deserve your hard-earned capital.
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
