Ford has had an impressive run over the past six months as its shares have beaten the S&P 500 by 17.6%. The stock now trades at $11.45, marking a 22.6% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Ford, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Ford Will Underperform?
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons why you should be careful with F and a stock we'd rather own.
1. Sales Volumes Stall, Demand Waning
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Automobile Manufacturing company because there’s a ceiling to what customers will pay.
Over the last two years, Ford failed to grow its vehicles sold, which came in at 1.19 million in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Ford might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Ford’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
Ford’s $157.7 billion of debt exceeds the $37.5 billion of cash on its balance sheet. Furthermore, its 9× net-debt-to-EBITDA ratio (based on its EBITDA of $13.51 billion over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Ford could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Ford can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Ford falls short of our quality standards. With its shares beating the market recently, the stock trades at 8.8× forward P/E (or $11.45 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
High-Quality Stocks for All Market Conditions
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.