What happened
Automotive giant Ford Motor Company (F -0.81%) stock has had a rough start to 2022, losing 18.5% of its value since the start of the year. On Tuesday, however, Ford finally found the gas pedal -- and floored it.
As of 11 a.m. ET, Ford stock is up a solid 6.6%.
Image source: Getty Images.
So what
You can thank Ford executive chairman Bill Ford -- great-grandson of the company's founder -- for that. As Barron's magazine reported last night, Ford (the chairman) bought more than a quarter million shares of Ford (the stock) last week, and this revelation seems to be boosting investor confidence that Ford stock is a buy.
Specifically, Ford (the chairman) spent $4.5 million to acquire 267,697 shares of Ford (the stock) -- paying $16.81 per share on average. This was his first insider purchase so far this year, and it seems it was well timed. In five days, he has reaped a tidy profit of 5.5%, or about 1 percentage point per day.
Now what
So far, so good. But will Ford stock keep going up? That's the question investors today need to be asking. Fortunately, I believe the answer to this question is yes.
Consider: Last year Ford earned nearly $18 billion in net income. And granted, more than half that profit came from one-time items that are unlikely to repeat, so I wouldn't invest in Ford today based solely upon its P/E ratio.
That being said, Ford's free cash flow (FCF) is a very respectable $9.5 billion, and weighed against a company market capitalization of $67 billion, that works out to a price-to-FCF ratio of only 7.0 -- which seems to me a very attractive price to pay for a business with growing profits and a strong 2.4% dividend yield.
Long story short, Bill Ford's insider purchase of Ford stock last week was the right call for himself -- and outside investors should seriously consider following the chairman's lead on this one.
