Why Ford Stock Might Not Be a Strong Pre-Earnings Pick

Buying a stock before an earnings report comes with higher risk, so it’s important to be confident about the company’s growth outlook. Ford Motor (F) is about to release its earnings results, but I remain cautious and bearish on Ford stock, given concerns raised by the company’s recent sales data.

Ford, a major player in both traditional and electric vehicle markets, offers a decent dividend and, as we’ll see, its shares are attractively priced. However, just because a stock has a low price-to-earnings (P/E) ratio and a high dividend doesn’t necessarily make it a good buy. For an automaker, demonstrating consistent sales growth is key, and Ford seems to be struggling in this area.

Watch Out for a Value-and-Yield Trap in Ford Stock

You may be familiar with the concepts of value traps and yield traps. Ford could potentially fall into both categories, so let’s break down the details to determine whether F stock is a trap for investors.

Ford currently has a non-GAAP trailing 12-month P/E ratio of 6.77x, which is significantly lower than the sector median of 14.98x. Additionally, Ford’s forward annual dividend yield stands at 7.05%, higher than the Consumer Cyclical Sector’s average yield of roughly 1%.

However, investors should not be hasty. A low P/E and high dividend yield can also result from a sharp drop in share price, as seen when Ford’s stock fell from $14.50 to $11. Such rapid declines can skew valuation metrics, so it’s wise to be cautious about F stock at the moment.

Ford is set to announce its Q3 2024 financial results on October 28, adding to the uncertainty around the stock. As a result, I’m taking a neutral stance for now.

Weak Sales Numbers Ahead of Earnings

I’m slightly bearish on F stock ahead of earnings due to Ford’s recent sales performance. In Q3 2024, Ford sold 504,039 vehicles compared to 500,504 in the same quarter last year, marking just a 0.7% year-over-year increase. This is a stark contrast to the 7.7% growth reported in Q3 2023. Ford isn’t alone, as Stellantis (STLA) also saw a 20% drop in U.S. sales, reflecting broader concerns about vehicle affordability among Detroit-based automakers. So, consider carefully whether you want to take on this risk with F stock.

Ford Struggles with Self-Driving Vehicle Service Sales

Another red flag for Ford is its decision to cut prices for its BlueCruise hands-free driving technology, which includes features like lane-keep assist and adaptive cruise control. Ford is reducing the subscription cost significantly, dropping the monthly fee from $75 to $50 and the annual fee from $800 to $495.

This move suggests weak demand for BlueCruise, which is a concern given the focus on self-driving technologies. The price cuts also raise questions about Ford’s ability to compete with other players like Tesla (TSLA) in this market.

Analyst Sentiment on Ford Stock

According to TipRanks, F stock is rated as a Moderate Buy, based on five Buy ratings, nine Hold ratings, and one Sell rating from analysts in the last three months. The average price target is $12.68, indicating a potential upside of 15.64%.

If you’re looking for analyst insights, Michael Ward of Benchmark Co. has the best track record for Ford stock, with an 11.88% average return and a 50% success rate over the past year.

Final Thoughts: Should You Buy Ford Stock?

Analysts have mixed views on Ford stock, and the weak sales of BlueCruise further add to the uncertainty. With Q3 earnings around the corner and sales growth slowing, Ford could face a challenging period. It may be wiser to wait for the earnings release to see if there are any significant surprises before making a move. As a cautious investor, I’m leaning slightly bearish and prefer to stay on the sidelines for now. So, how do you think of Ford? would you buy it?