The company's latest financial announcement highlights the struggles it's facing.
It's been a tough year for Ford (F -3.30%) investors, as the stock currently sits 11% below where it started 2023 (as of Nov. 27). This is discouraging, especially when the broader S&P 500 is up almost 19% this year.
But it's hard to argue that Ford shares aren't cheap. They currently trade at a trailing price-to-earnings ratio of 6.8. It might be too hard to pass on this opportunity.
Should investors buy this auto stock right now? Let's take a closer look at Ford's most recent financial results, as well as some more important factors, to come to an informed conclusion.
Some disappointing updates
Investors were clearly disappointed with Ford's financial results for Q3 2023 (ended Sept. 30) because shares have fallen 9% since the announcement. Although automotive revenue of $41.2 billion was largely in line with Wall Street estimates, adjusted earnings per share of $0.39, up 30% compared to a year ago, missed expectations by a sizable margin.
Perhaps the most alarming update was that due to the union strikes, Ford's management team took away their guidance for the full year. Previously, they said the business would generate $11.5 billion of adjusted net income (at the midpoint) in 2023.
"This is in part because of the continued disruption in the industry with the ongoing strikes, the follow-on impact to our shared supply base, the ramp-up of production in our plants and at our supplier partners, as well as other ancillary effects," CFO John Lawler said on the Q3 2023 earnings call about the decision to withdraw financial guidance.
It's hard to overstate the strike's negative impact. According to Lawler, the production stoppages will reduce full-year operating income by a whopping $1.3 billion.
Ford is also dealing with some issues as it relates to the company's notable electric vehicle (EV) ambitions. Due to higher costs and lower-than-anticipated demand, executives have decided to push back $12 billion of EV investments.
The bigger picture for Ford
Besides the more recent challenges that are plaguing the business, investors also need to zoom out and focus on other unfavorable realities about Ford. Maybe the most important is that the company lacks an economic moat. For investors who plan to own a stock for many years, this is probably the main characteristic to look for in the businesses you're considering adding to your portfolio.
Some might argue that Ford possesses an economic moat because of its brand recognition. After all, this company has been around for over a century, and it's a household name.
But a rebuttal would be that Ford's gross margin indicates that it has no brand edge in the marketplace, particularly versus major rivals like GM, Honda, Toyota, Hyundai, and Kia. Plus, Ford only commands a 5% share of the global car market. In other words, it's a relatively small player among numerous other brands.
The company's low margins speak to the intense competition in the industry. As industry watchers have seen this year, price wars are a key risk to always be mindful of. And with the recurring battles with its unionized workforce, Ford's costs could rise in perpetuity.
Auto manufacturers are also notoriously cyclical enterprises. In recessionary periods, consumers will delay purchasing new cars to conserve cash, choosing instead to find ways to extend the useful lives of their existing vehicles. Investors might think that they can successfully time the economic cycle and load up on Ford shares right before the start of boom times. However, that's much easier said than done.
The reasons to avoid this stock far outnumber any valid arguments to buy it, namely that it appears cheap right now. And for that reason, I think investors should steer clear of Ford.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
