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
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