If you buy a stock before an earnings event, the risk is elevated, and you need to be confident about the company’s growth trajectory. As it turns out, Ford Motor (F) is about to report its earnings data. As a cautious investor, I am bearish on Ford stock because the company’s already-released sales data raises concerns.
Ford Motor is an automotive giant that sells both conventional and electric vehicles. The company pays a decent dividend and, as we’ll discover, Ford shares appear to be bargain-priced.
On the other hand, it’s not a great idea to jump on a stock just because a company has a low price-to-earnings (P/E) and offers a big dividend. It’s just as important for an automaker to demonstrate sales growth, and in that regard, Ford’s gears are stuck in reverse.
You’ve heard about value traps, and maybe you’ve heard of yield traps. Could Ford fit into both of these categories? It’s entirely possible, so let’s delve into Ford’s details and see if there’s a value-and-yield trap with F stock.
Ford has a non-GAAP trailing 12-month P/E ratio of 6.77x, which is certainly lower than the sector median P/E ratio of 14.98x. Furthermore, offers a forward annual dividend yield of 7.05%, which seems more favorable than the Consumer Cyclical Sector Average dividend yield of around 1%.
Don’t jump to any conclusions, though. It’s possible for a company to have a very low P/E ratio and a very high dividend yield, like Ford does, if the share price drops sharply. It wasn’t too long ago when F stock plummeted from $14.50 to $11. Rapid, steep stock-price collapses can create distortions in P/E ratios and dividend yields, so don’t enter into any hasty trades with Ford stock right now.
Quarterly financial reports can cause a stock to rally or tank. Nevertheless, some risk-takers will grab shares of Ford stock today, even though the company is set to disclose its third-quarter 2024 financial results on October 28, which is coming up very soon. So, there’s already reason to feel neutral about Ford stock right now.
Yet, I’m actually feeling a little bit bearish about F stock before the company’s earnings event, and there’s a specific reason for this. I don’t have a crystal ball, but we all can look at Ford’s third-quarter 2024 vehicle sales numbers before the automaker’s financial results are to be released. Specifically, Ford sold 504,039 units versus 500,504 units in the year-earlier quarter, and that only represents a 0.7% year-over-year increase.
In contrast, Ford demonstrated 7.7% year-on-year vehicle sales growth in the third quarter of 2023. Ford isn’t the only Detroit-based automaker showing an alarming sales trajectory, as Stellantis (STLA) recently posted a 20% decline in U.S. quarterly sales. Evidently, concerns about vehicle affordability are dragging on Detroit-based automakers’ sales growth figures. So, ask yourself: Do I really need to take any unnecessary chances on F stock today?
Moreover, there’s another sign that Ford’s having trouble under the hood. Specifically, Ford just announced its plans to reduce its subscription prices for the company’s BlueCruise hands-free driving technology. BlueCruise offers autonomous (hands-free) driving features, such as lane-keep assist and adaptive cruise control.
In fact, Ford expects to lower the prices for both its annual and monthly BlueCruise subscriptions. These will be steep price cuts, from $75 to $50 for the monthly subscription plan and from $800 to $495 for the annual plan.
This surely isn’t a positive sign for Ford. Self-driving features are supposed to be front-page news nowadays, but Ford’s steep subscription price cuts indicate that BlueCruise isn’t a highly in-demand service. This adds to my bearish argument and causes me to wonder whether competitors like Tesla (TSLA) will command a strong lead over Ford in the market for self-driving technology services.
On TipRanks, F stock comes in as a Moderate Buy based on five Buys, nine Holds, and one Sell rating assigned by analysts in the past three months. The average Ford Motor stock price target is $12.68, implying 15.64% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell Ford stock, the most accurate analyst covering the stock (on a one-year timeframe) is Michael Ward of Benchmark Co., with an average return of 11.88% per rating and a 50% success rate.
As you can see, analysts are only lukewarm about Ford Motor stock. Also, it’s apparent that Ford’s BlueCruise subscriptions aren’t selling like hotcakes. Additionally, with an earnings event coming up soon, Ford could disappoint investors as the automaker’s quarterly vehicle sales growth is slowing.
In other words, Ford has issues to address, and investors don’t need to jump into what might be a value-and-yield trap. Instead, you can choose to wait until Ford’s third-quarter 2024 financial results to see if there are any major positive surprises. I’m not super-confident that this will happen, so as a cautious investor, I’m leaning slightly bearish on F stock and staying on the sidelines.
