Ford (NYSE:F), a prominent member of Detroit’s Big 3, is currently trading at around $10 with a market capitalization of approximately $40 billion. In contrast, its rival legacy automaker, General Motors (NYSE:GM), boasts a similar market cap but trades at approximately $30.

Back in 1956, Ford went public by offering 10.2 million Class A shares, representing a 22% stake in the company. This marked the most significant IPO in the United States at the time, with the involvement of nearly 200 banks.

Ford’s IPO Did Not Generate Wealth for Investors

The IPO was priced at $64.50, and Ford achieved a market cap of over $3.2 billion on its first day of trading. In that year, the automaker ranked third among Fortune 500 companies, following General Motors and the Standard Oil Company of New Jersey, which later became Exxon and subsequently ExxonMobil (NYSE:XOM).

Since Ford’s initial public offering, 67 years have passed, during which its shares have seen a compounded annual growth rate (CAGR) of less than 4%. Even when factoring in dividends, the returns have trailed what the S&P 500 Index has delivered over the same period.

Why Is Ford’s Stock Price So Low?

It may appear puzzling to many why Ford’s stock price remains relatively low despite its long-standing presence in the market. Two primary reasons contribute to this. Firstly, Ford has undergone six share splits, with the most recent split occurring in 1994. Secondly, and perhaps more significantly, the stock’s performance has been lackluster, trading at less than one-third of its all-time high in 1999.

Over the past decade, the stock has lost over 38%, and over the last two decades, it has declined by 20%. While the shares briefly reached $20 in late 2021 for the first time in two decades, they have since retreated and, following a negative performance in 2022, continue to trend downward in 2023.

With such a poor track record on the charts, it is unsurprising that Ford’s stock is priced at a modest $10.

What’s Wrong With Ford Stock and Why Is It Declining?

In 2022, Ford reported revenues just above $158 billion, a figure lower than its revenue at the beginning of the century. The company has exited several small and unprofitable markets and, coupled with stagnant sales in the U.S., this has led to a decline in top-line growth.

Despite its efforts to transform the business and implement cost-cutting measures, Ford’s 2022 operating income remained below its 2000 levels. To compound matters, the company is trading at depressed valuations, reflecting its sluggish growth and the market’s perception of its future prospects.

In simple terms, a company’s stock price is influenced by its earnings and the price-to-earnings multiple that investors are willing to pay for those earnings. With Ford struggling in both of these aspects, it’s not surprising that the stock’s price is faltering.

Can Ford Stock Reach $100?

With a current stock price of $10.31, Ford carries a market capitalization of $41.3 billion. If Ford’s stock were to reach $100, its market cap would need to climb to approximately $400 billion. However, it would not be reasonable to expect Ford to reach $100 in the near future. Even Toyota Motors (NYSE:TM), the most valuable legacy automaker, has a market cap below $300 billion.

Another point of reference could be Tesla (NASDAQ:TSLA), which currently holds a market cap of around $700 billion. Nevertheless, at its peak, Tesla’s market value surpassed $1.2 trillion. It’s important to note that no other automaker in history has ever achieved a market cap of $1 trillion.

However, Tesla’s astronomical valuation is not solely attributed to its electric vehicle (EV) business. According to Elon Musk, Tesla’s valuation is contingent on its autonomous driving business, a view shared by analysts and fund managers who are optimistic about Tesla’s future.

In contrast, Ford has scaled down its commitment to autonomous driving and wrote off its $2.7 billion investment in the autonomous driving startup Argo AI last year.

How High Can Ford Stock Realistically Climb?

This isn’t to say that Ford stock isn’t a worthwhile investment. The highest target price on the Street, $20, implies nearly doubling from current levels, while even the mean target price of $14.42 represents an almost 40% increase.

In my view, Ford stock appears undervalued, considering its next-12 months (NTM) price-to-earnings multiple of 6.76x. Notably, this valuation should be viewed in light of the losses in its EV business, as Ford anticipates a pre-tax loss of $4.5 billion in 2023.

Ford has been transparent about the challenges its EV business faces and is concurrently focusing on hybrid vehicles. The company postponed a $12 billion investment in its EV production capacity and maintains flexibility regarding its ambitious EV production targets. The volatility in the EV market is expected to persist, resulting in continued losses in Ford’s EV business.

Nevertheless, I believe Ford stock has the potential to deliver substantial returns in the next couple of years due to its attractive valuations and strong product lineup, including the F-150 pickup, which has been America’s best-selling pickup for nearly five decades. While expecting the stock to reach $100 in the near future might be overly optimistic, it still holds promise for patient investors.

Featured Image: Pexels @ Julissa Helmuth

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