Ford's (F +1.83%) 2023 first-quarter net sales of $41.5 billion were up 20% year over year, an acceleration from the 17% gain posted in the last three months of 2022. Adjusted earnings per share also skyrocketed 66% compared to Q1 2022. The top- and bottom-line figures handily crushed Wall Street expectations.
Besides its impressive recent financials, a clear sign of business momentum, there's a lot to unpack with this leading automotive business. Should investors buy Ford stock right now? Let's take a closer look at what you need to know before making an informed decision for your portfolio.
Weathering the storm
Like its rivals in the industry, Ford battled with major headwinds throughout 2022. That helps explain why the stock was down a jaw-dropping 44% last year. That's a worse performance than the 19% decline for the S&P 500.
Supply chain bottlenecks, which have now improved, were a problem last year and resulted in higher costs for the business. And perhaps attracting more attention from investors was the Federal Reserve's aggressive rate-hiking policies, making cars less affordable for consumers. In addition to these external forces, management admitted they made some execution errors last year.
The leadership team is fully aware of the uncertain macro environment that could pressure demand in the near term. This is a cyclical industry, after all, and a severe recession could greatly impact Ford in a negative way. Making matters worse is a market imbalance in the industry right now, with car supplies at elevated levels, forcing companies to implement higher-than-normal price incentives.
But Ford's latest financials provide shareholders a lot of hope that the situation is improving.
NYSE: F
Key Data Points
An electric future
During the latest quarter, Ford Model E, the company's division for electric vehicles (EV), sold just 12,000 units, down 33% from 18,000 in Q1 2022. But executives think this could hit two million annually by the end of 2026.
According to InsideEVs, Ford had about 8% of new EV registrations in January, good for third place. Unsurprisingly, this space is dominated by Tesla, which Ford recently partnered with for charging infrastructure. Ford EV owners can charge up at Tesla's network of charging stations. That could boost the Michigan-based company's EV ambitions by easing customer concerns about driving range.
And given Ford's long-standing position as one of the world's leading auto manufacturers, it's hard not to believe that this business will be a major player in the EV industry going forward.
Looking at the valuation and risk factors
Ford shares are up 20% in 2023 but remain substantially below their all-time high from January 2022. And the stock is selling at a forward price-to-earnings (P/E) multiple of 7.7. That's just over a third of the forward P/E of the overall S&P 500.
Although Ford's valuation might look attractive, especially considering how beaten-down it's been over the past year and a half or so, investors must always be mindful of the risks. Ford's top-line growth won't be anything to write home about, as the industry is very mature, even with the transition to EVs. The company's total revenue in 2022 was just 18% higher than in 2012.
Ford does have a powerful brand, but there will always be intense competition among carmakers. The industry is cyclical and capital-intensive, and this can be a drag on the financials, which is something to always keep in mind. And if the past few years have taught us anything, it's that to be successful, Ford relies on very favorable conditions mostly outside of the company's control, like a robust macro backdrop and smooth supply chains.
For investors who understand these risks, though, Ford could be a good stock to buy. It's still well off its peak price, which means the pessimism might be fully priced in, leading to added upside. Plus, the current dividend yield of 4.3% adds a nice income stream.
