As one of the world's largest car manufacturers with a range of well-known models, Ford (F +3.46%) is well-known to investors. The company generated $176 billion in revenue last year and currently sports a market cap of $49 billion.
But this top auto stock hasn't been the best to its shareholders. A $1,000 investment in Ford 10 years ago would be worth $1,316 today, including dividends. A similar cash outlay in February 2014 in the S&P 500 would've resulted in a current balance of $3,280.
The Detroit automaker clearly hasn't been a great investment historically. But can this low-performing stock make you a millionaire one day?
Unfavorable business qualities
Ford turned in Q4 2023 automotive revenue of $43 billion and adjusted earnings per share of $0.29, and both figures beat Wall Street estimates. So it might appear that the company is benefiting from strong momentum right now. However, it's best to understand some critical factors that point to the company's unfavorable traits, which long-term investors should care about most.
For starters, Ford's growth is nothing to write home about. Between 2013 and 2023, sales increased at a compound annual rate of just 1.8%. It's not a surprise: This is such a mature industry that there isn't a lot of room for expansion. On a global basis, there were 74.8 million passenger cars sold in 2022, just a 12% increase over 2010.
Ford consistently generates extremely low profitability. Its operating margin has averaged a paltry 1.5% in the last five years. Even worse, this figure hasn't demonstrated any benefits to scale.
The blame goes to Ford's huge expenses for things like labor, commodity inputs, and marketing. Add this to high levels of capital expenditures to build out factories and invest in research and development capabilities, and Ford must continuously spend heavily to maintain its position in a very competitive industry.
NYSE: F
Key Data Points
Compare Ford's situation to a company like Alphabet. The tech titan benefits from powerful network effects, operating arguably one of the most successful enterprises of all time. The company's products and services are used by billions of people on a daily basis.
Alphabet's operating margin has averaged a superb 25.6% over the past decade. It produced a whopping $69 billion of free cash flow in 2023 and has a net cash position of almost $100 billion. And there's sizable growth potential as internet users and usage increases.
This isn't to say that investors should only look at internet stocks to achieve huge returns. The point is that the nature of Ford's business and the industry in which it operates doesn't lend itself to outsized investment gains over the long term.
No path to a million
If you invested $53,000 in the S&P 500 30 years ago, you'd be sitting on a cool $1 million today. This translates to an annualized return of 10.3%, which is surely respectable. That same investment in Ford shares, though, would've turned into $183,000 over the three-decade stretch.
As we set our sights on the future, a larger initial investment in Ford stock, coupled with a much longer time horizon, might result in a $1 million balance. But I don't think this will even come close to matching the S&P 500's performance.
Investors trying to become millionaires by owning Ford should seriously lower their expectations. There are more lucrative places to park your capital.
