Ford (NYSE:F), a prominent member of Detroit’s Big 3, is currently trading at approximately $10 with a market capitalization of about $40 billion. In contrast, its rival legacy automaker, General Motors (NYSE:GM), shares a similar market capitalization but trades at around $30 per share.
Ford’s Historical Journey
Back in 1956, Ford made its initial public offering (IPO) by offering 10.2 million Class A shares, divesting a 22% stake in the company. This historic IPO was a significant event in its time, involving participation from nearly 200 banks. Ford set the IPO price at $64.50, resulting in a market capitalization exceeding $3.2 billion on its first trading day. In that year, Ford ranked third on the Fortune 500 list, following General Motors and the Standard Oil Company of New Jersey, which later became Exxon and subsequently ExxonMobil (NYSE:XOM).
Investor Wealth and Ford’s IPO
Fast forward 67 years and Ford’s shares have experienced a compound annual growth rate (CAGR) of under 4%. Even when accounting for dividends, the returns have lagged behind what the S&P 500 Index ($SPX) has delivered during this time.
Understanding Ford’s Low Stock Price
Many may find it puzzling why Ford’s stock price remains relatively low despite being a publicly traded company for over six decades. Two main factors contribute to this situation: share splits and underperformance. Ford has executed six share splits, with the most recent one occurring in 1994. More importantly, Ford’s shares have underperformed, trading at less than one-third of their all-time highs achieved in 1999.
Over the past decade, Ford’s shares have lost over 38%, and over the last two decades, they have dipped by 20%. While they briefly reached $20 in late 2021 for the first time in 20 years, they have since declined. In 2022, they closed in the red, and in 2023, they continued to trade below previous levels.
Reasons Behind the Decline
Ford reported revenues slightly over $158 billion in 2022, which is lower than its early-2000s figures. Exiting unprofitable markets and experiencing stagnant sales in the U.S. have contributed to this decline in top-line growth. Despite efforts to revamp the business and cut costs, Ford’s 2022 operating income fell below levels from 2000. The company also faces depressed valuations, reflecting its struggling growth and market sentiment.
The Challenge for Ford
The stock price of any company depends on its earnings and the price-to-earnings multiple investors are willing to pay. With Ford’s performance faltering on both fronts, its stock price has remained depressed.
Can Ford Stock Reach $100?
Currently, Ford’s stock price stands at $10.31, resulting in a market capitalization of $41.3 billion. While reaching $100 per share may not be a near-term expectation, it’s essential to recognize that even Toyota Motors (TM), the most valuable legacy automaker, has a market capitalization below $300 billion.
Comparing Ford to Tesla
In contrast, Tesla (NASDAQ:TSLA) commands a market capitalization of approximately $700 billion, with a peak valuation exceeding $1.2 trillion. However, Tesla’s valuation is not solely driven by its electric vehicle (EV) business but also by its autonomous driving ambitions. Ford, on the other hand, scaled back its investment in autonomous driving by writing off its $2.7 billion investment in autonomous driving startup Argo AI last year.
A Realistic Outlook for Ford
Despite its challenges, Ford remains a viable investment. The highest target price on Wall Street suggests the potential for the stock to nearly double from current levels, with the mean target price projecting almost a 40% increase.
Ford’s Value Proposition
Ford’s next-12 months (NTM) price-to-earnings multiple of 6.76x appears undervalued, especially when considering the losses in its EV business, which is expected to post a pre-tax loss of $4.5 billion in 2023. While Ford acknowledges the challenges in the EV market and has opted for a more cautious approach, its strong product portfolio, including the F-150 pickup, which has been America’s best-selling pickup for nearly five decades, positions the company to deliver attractive returns in the coming years.
While achieving a $100 stock price for Ford may not be on the immediate horizon, the company’s potential remains promising for patient investors.
Featured Image: Unsplash
