With its popular models like the F-150, Mustang, and Explorer, Ford (F -1.92%) needs no introduction. This business has been around for over a century, and it's one of the world's largest car manufacturers today.
But this automotive stock hasn't been the biggest winner for investors. Shares have returned 26% in the past decade, a figure that includes dividends. For comparison's sake, the S&P 500 would've grown your capital by 240%.
As we focus our attention on the present situation and what the future might hold, is Ford stock a buy now?
Looking at the latest numbers
Ford blew past Wall Street estimates for the fourth quarter of 2023. Revenue increased by 2% to $46 billion. For the full year, sales jumped 11%. All of the company's segments -- including its legacy autos, electric vehicles (EVs), and the pro division -- reported growth in 2023 versus the year before. Management even announced a special one-time dividend of $0.18 per share.
While its adjusted earnings before interest and taxes (EBIT) margin dipped in 2023, Ford has identified where it can cut costs by $2 billion, with the expectation that the company's expenses in 2024 will be in line with last year.
Executives provided upbeat profitability guidance. They believe Ford will generate adjusted EBIT of $10 billion to $12 billion this year, the midpoint of which would be higher than the $10.4 billion reported in each of the past couple years.
The financial update was well received by investors: Shares jumped 6% in after-hours trading.
Zooming out
Ford might be firing on all cylinders right now, at least according to its leadership team, but I think investors need to focus on some more important factors that matter over the long term. By doing so, it's easy to conclude that this won't be a winning stock over the next several years.
There are several reasons why I don't believe this is a good business.
From an industry perspective, there is a ridiculous amount of competition in the auto manufacturing space. Ford not only has to continue battling it out with other legacy car companies like GM, Stellantis, Toyota Motor, Honda Motor, and Volkswagen, among others, but there are also many EV makers vying for position as the industry shifts to a more sustainable future. This backdrop has and will continue to make it difficult for Ford to stand out from the crowd, attract customers, and grow sales.
And like its peers, Ford is unduly exposed to numerous factors that are outside of its control. Macroeconomic forces -- such as changes in interest rates and gas prices -- can have a profound impact on the auto industry by influencing consumers' propensity to buy new vehicles.
Supply chain issues, which have been at the forefront in recent years, can also negatively affect Ford's production capacity and input costs. Furthermore, there are ongoing labor disputes, which could become a problem again in a few years because the current United Auto Workers contract is set to expire in 2028. Again, the company has minimal control over any of this, which adds risk.
A closer look at the financials makes it incredibly clear that there is much to be desired. In the past decade, Ford's revenue growth has averaged a subpar 1.8% per year. U.S. GDP increased at a compound annual rate of 4.6% between 2012 and 2022. Investors shouldn't want to own a company that is expanding at a slower clip than the overall economy.
And going back to the nature of the industry, Ford can't escape how capital-intensive auto manufacturing is. There will always be the need to spend heavily on capital expenditures, with profit margins remaining in the single digits. But Ford has no choice but to play this game, unless it wants to lose to rivals.
The result is that these poor fundamental characteristics will likely lead to weak investment returns over the long term.
