The S&P 500 might be having another fantastic year. However, that bullish fever taking over the market hasn't extended to all businesses out there.
Ford (F +0.04%) is one of the unfortunate ones. As of this writing, the Detroit automaker's shares are down 21% in 2024, which is no doubt a disappointing performance that would worry any investor.
But perhaps you're feeling optimistic about the long-term picture. Is Ford a millionaire-maker?
Poor track record
Ford's weak showing in 2024 isn't an anomaly. The stock hasn't been the best place to park your hard-earned savings over any extended period of time.
Astute readers will point to the company's hefty dividend yield of 6.2%, an income stream that definitely adds to investor gains. Even if we include this payout, Ford shares have generated a total return of 32% and 16%, respectively, in the past five- and 10-year periods. Again, these figures seriously lag the broader S&P 500's performance.
Questioning Ford's quality
Ford's poor track record as an investment can be blamed on several key factors. In my opinion, these all point to this not being a high-quality enterprise.
The fact that Ford operates in a very mature industry is one negative characteristic to consider. In 2023, there were 65.3 million passenger vehicles sold globally. That's no doubt a huge number, but it's only 3% higher than the total for 2013. Viewed differently, unit sales have only increased at a compound annual rate of 0.3%.
It makes sense that the worldwide auto industry's growth trajectory is limited by population and gross domestic product (GDP) trends. This doesn't provide Ford with a favorable backdrop to post solid top-line gains. Revenue in the third quarter (ended Sept. 30) of $46.2 billion represented an increase of just 25% when compared to the same period five years earlier.
Ford's weak profits are another negative trait. The company's operating margin has averaged 2% in the past decade, with no signs of economies of scale. The disappointing bottom line isn't that surprising when you consider the enormous expenditures Ford has on an ongoing basis, primarily for its massive labor force that demands better terms every few years, research and development to launch new models, marketing to drive interest, and production and manufacturing capabilities.
NYSE: F
Key Data Points
This leads me to my next point, which is that Ford lacks any durable competitive advantages. This statement is supported by the company's ultra-low return on invested capital (ROIC) of 1.8%. Investors should seek to own businesses that have high ROICs, as it indicates the ability to earn attractive returns on the money that's deployed across the organization.
In this instance, Ford will always require huge amounts of capital to not only maintain its existing competitive position, but to expand. That's because of just how fierce the industry layout is. Ford has to aggressively compete with sizable domestic and international peers, which makes it difficult to stand out.
Finally, we can't forget just how cyclical the auto industry is. Because buying a new car is such a big purchase for the average consumer, when times get tough, these purchases can easily be delayed. That can cause financial performance to be volatile.
If you want to be a millionaire, look elsewhere
When you look at the less-than-ideal factors that describe Ford's business, it's easy to understand why the stock has made for such a terrible investment. There's no reason to believe that the company's operations are suddenly going to evolve into a higher-growth, more profitable, and less cyclical enterprise.
As a result, I don't view Ford being a millionaire-maker. Yes, the dividend can be compelling for income investors, but the stock price's performance continues to be a drag on returns.
