It might come as a surprise to investors, but
Ford
(NYSE: F)
is outperforming the broader market this year. As of May 28, the stock is up nearly 3% in 2025. This small win doesn't take away from the fact that the company has a poor track record over an extended period of time. Nonetheless, it's best to view the situation with a fresh perspective.
Ford shares currently trade below $11. Does this setup mean that you should be a buyer right now? Let's look at the most important factors about the business and the stock that long-term investors should be paying attention to.
Economic moat
In my view, one of the first things investors should try to identify when looking at a potential stock to buy is the presence of an economic moat. Capitalism creates fierce competition. And the companies that have built up durable competitive strengths are able to outperform rivals in the long run. Even the legendary investor Warren Buffett would likely agree.
Turning the attention back to Ford, it's an easy argument to make by saying the company does not have an economic moat. A quantitative representation can be had by looking at the
return on invested capital
(ROIC) of 8.6%. It's best to own businesses that generate a figure well over 20%, as this indicates a huge spread between ROIC and the
weighted average cost of capital
. Producing a much higher ROIC showcases the ability to create real economic value, as opposed to destroying it.
Understanding the industry backdrop will also give investors pause. The market is incredibly competitive, with domestic and foreign auto makers vying for consumer wallet share. The rise of electric vehicle (EV) enterprises only complicates the landscape. Some consumers might have an affinity to a brand, but other factors like price, features, and reliability can matter more in certain circumstances. It's hard to gain any sustainable advantage over rivals.
Show me the growth
Ford has been around for over a century, a nod to its staying power. However, this also reveals just how mature the auto industry is. Yes, there has been some innovation in recent decades with the introduction of hybrid cars and EVs. But the overall industry's growth isn't anything to write home about.
In 2024, Ford brought in $185 billion in total revenue. This is just 28% higher than exactly one decade earlier in 2014. There were 17.8 million cars sold in the U.S. in April on a seasonally adjusted annual rate. That number is the same as exactly 25 years ago. The takeaway is that investors shouldn't expect Ford to miraculously start to supercharge its unit growth in the years ahead, unless, of course, there is a surge in the global population that warrants the need for more vehicles being on the road. I wouldn't bet on it.
There is one bright spot under Food's hood, though, which is the Pro segment. This commercial-focused operation put up 15% sales growth in 2024, with an operating margin of 13.5%. Management touts its ability to bring in recurring revenue for the business.
Ford stock is cheap
At under $11 per share, investors might be drawn to the current valuation. The stock trades at a price-to-earnings (P/E) ratio of 8.1, which is a massive discount to the overall market. Consequently, investors can get a
dividend yield
of 5.9%.
As enticing as that sounds, Ford typically won't command a multiple that's in line with the market just because of how capital-intensive and cyclical the company's operations are. And that dividend payout could take a hit in an economic downturn if revenue and earnings plummet. Ford is a stock that long-term investors should avoid.
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Neil Patel
has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a
disclosure policy
.
