The Dow Jones fell a whopping 370 points on Wednesday. yet is still higher by 9% over the last six months. Meanwhile, Ford Motor Company (NYSE:F), who along with GM has the lowest forward P/E ratio of any company with more than $100 billion in annual revenue, has fallen 9% in the same span and just hit a new 52-week low.
As seen below, Ford Motor Company (NYSE:F) is a cash cow with $4.6 billion in net income last year. That means Ford stock trades at just 9x last year’s earnings, and 6.5x next year’s earnings. With a 5.6% dividend yield and such a cheap multiple, Ford stock would seem like a no-brainer. Yet, it just keeps going lower. Therefore, let’s explore five reasons why F stock’s collapse should be no surprise.
First, auto sales in the U.S. have peaked and Ford Motor Company (NYSE:F) just recently resorted to job cuts as a solution to keep margins from falling lower. According to the WSJ, Ford is poised to cut 10% of its workforce. While Wall Street often likes job cuts, the optics don’t look good for Ford stock.
Second, Ford Motor Company (NYSE:F) is going “all in” on electric vehicles at a time when no one knows whether Trump will extend tax subsidies. Approximately 40% of Ford’s vehicle line-up will be fully electric by 2020. Problem is electric vehicles have never been profitable without subsidies, and F stock owners are not buying it.
Third, Tesla Inc (NASDAQ:TSLA) may be small now. However, it is the Amazon of vehicles, and with its Gigafactory complete, mass production is a huge risk for traditional auto giants like Ford. With Tesla Inc (NASDAQ:TSLA) gaining momentum, increasing its retail presence, and building its ecosystem with charging stations all throughout the country, Ford stock owners realize that Elon Musk and Tesla Inc (NASDAQ:TSLA) are a long-term problem.
Fourth, Ford does not seem to get the ride sharing movement. Uber is worth $65 billion and GM invested in Lyft. Ford Motor Company (NYSE:F) is left without a significant presence in that space. That’s a problem.
Fifth, Ford Motor Company (NYSE:F) does not seem to realize that renting is the new lease. GM figured it out with Maven, tying it in with Lyft and offering consumers the option to own, lease, or rent. Ultimately, that could be a huge market for GM, and it is an inexpensive project. Meanwhile, Ford Motor Company (NYSE:F) does not seem to prioritize such investments and is willing to spend upwards of $10 billion to go “electric” by 2020.
Overall, there is a lot of uncertainty regarding Ford’s direction, and rightfully so.