Ford Motor Co. (NYSE: F) is engaged in automobile manufacturing business. It produces cars and trucks. Its business is divided into two segments: Automotive and Financial Services. On April 28, 2016, the company reported first quarter earnings of $0.68 per share which beat analyst estimates by $0.22 and beat on revenue expectations by $2B. In the past year the company's stock is down 15.6% and is losing to the S&P 500, which has lost 3.3% in the same time frame.
I bought the stock for the ESPP portion of my portfolio and recently the company reported solid sales in Europe. It is with this bit of news I feel that it is important to evaluate the company on a fundamental, financial, and technical basis to see if it's worth adding additional shares to my portfolio.
The company currently trades at a trailing 12-month P/E ratio of 5.94, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 6.23 is currently inexpensively priced for the future in terms of the right here, right now. The forward P/E value that is higher than the trailing twelve month P/E value tells us the story of earnings contraction in the next year. However, next year's estimated earnings are $2.12 per share while the trailing twelve month earnings per share were $2.23, I never like that. Next year's estimated earnings are $2.12 per share and I'd consider the stock inexpensive until about $32. The 1-year PEG ratio (5.4), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 1.1%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 4.54% with a payout ratio of 27% of trailing 12-month earnings while sporting return on assets, equity and investment values of 4%, 31.8%, and 3%, respectively, which are all respectable values. The really high return on equity value (31.8%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.54% yield of this company is good enough alone for me to take shelter in for the time being. The company has been increasing its dividends for the past four years.
Click to enlargeLooking first at the relative strength index chart [RSI] at the top, I see the stock in battleground territory with a current value of 48.13 relative to the rest of the market. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height which tells me bearish momentum is in the name. As for the stock price itself ($13.22), I'm looking at$14.44 to act as resistance and$12.47 t o act as support for a risk/reward ratio which plays out to be-5.7% to 9.2%.
Fundamentally I believe the company to be inexpensively valued now on next year's earnings estimates and inexpensive on earnings growth expectations. However, what I don't like is that earnings are expected to contract in 2017 compared to what they have been over the past year. Financially the company does pay a great dividend and has a great return on equity. On a technical basis the risk/reward ratio shows me there is more reward than risk right now. Although the short-term reward seems greater than the risk the overall direction in the name is down. Coupled with the earnings contraction I'm not going to be buying additional shares in the name but rather be writing calls against it .
Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am/we are long F.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.