As Ford's (NYSE:F) stock price is not in line with the growth the company has been experiencing, I kept blaming the investors who weren't buying enough Ford shares, or perhaps selling too many of them. Then, while I was doing research, I came across something completely different. Yes, the market was still not giving the company the credit it deserved, however they were only partly to blame. One of the reasons for Ford's stock price to remain low was the high number of outstanding shares.
In the last 5 years, the number of outstanding Ford shares increased by 79%. This is mostly due to Ford issuing new shares in order to pay off debt, provide liquidity and provide shares for the employees to be awarded such as the management.
During the same time period, Ford's share price only appreciated by 4.7%. Obviously if the number of shares didn't increase by such a huge rate, the share price would have appreciated at a much higher rate.
During the same period, the company's market cap increased at a rate more inline with the company's growth. In the last 5 years, the company's market cap grew by 100% whereas the stock share price only appreciated by 4.7%. The discrepancy between the two growth rates is mostly due to amount of shares outstanding.
It looks like every 17 Ford shares today are as good as 10 Ford shares 5 years ago. I understand that when things were tough, the company had to issue more shares in order to avoid either bankruptcy or government control. However, when things are in much better shape for the company at the moment, the company should return the favor to its long term investors that stayed loyal with the company in good days and the bad alike. Currently the company has every resource to buy back the new shares it issued in the last five years and it owes this to its investors.
If the company starts buying back shares, not only this will increase the intrinsic value of each share, but also this will increase amount of earnings and dividend per share and increase market confidence in Ford. This would definitely get many former Ford investors back in the track. Currently the company has enough cash to buy more than half of the outstanding shares and the company should try its best to bring the amount of outstanding shares to pre-2008 levels while it is also working on decreasing its amount of debt. Ford has done a great job of reducing its debt so far, but I would say that the company didn't do much of a job of reducing the number of shares outstanding. This would be a great start for a Ford rally and this is one of the rare cases where a company's management can have a direct and strong impact on the company's stock price within short term.
Disclosure: I am long F.