After crashing over 56% in under 50 days amid coronavirus, Ford stock has one of the most alarming corporate multiples in the S&P 500.
While Ford Motor Company’s (NYSE: F) fourth quarter results were bad, the Detroit automaker has a cataclysmic first quarter ahead. The headlines write themselves.
All the jokes told by auto sales consultants for competing car brands come to mind. Ford, found on road dead. Ford, fast only running downhill.
Analysts on Wall Street were already expecting a dismal report of fourth quarter sales and earnings. A survey of Wall Street analysts by Thomson Reuters found they expected Ford to earn $0.16 per share.
The company reported an even more disappointing $0.12 EPS. In contrast, average earnings per share for S&P 500 Index companies is $33.99 according to S&P data.
Moreover, and perhaps even worse for Ford stock, the company announced disappointing 2020 earnings projections. Wall Street wasn’t thrilled with a full-year earnings forecast of between 94 cents and $1.20 a share.
Ford stock slid 11.7% from $9.18 on Tuesday, February 4, the day of the report, to $8.10 by that Friday to close out the week. But that was nothing. The coronavirus was on the verge of rocking the world.
After coronavirus sent equities into a worldwide free fall, Ford stock’s losses really got started. From Feb. 4 to Mar. 23, the stock experienced a dreadful 56% crash from $9.18 to $4.01.
Sure, the entire stock market crashed during that time, but not as hard as Ford stock did. The S&P 500 Index crashed a miserable, but far less gut wrenching, 32% from the 3,297 level to 2,237.
But here’s how you really know coronavirus dealt a death blow to Ford stock. It’s not just about the percentage of valuation lost on the stock market.
The Price-to-Earnings (P/E) ratio is a commonly used indicator to evaluate whether the stock price is out of sync with the ability of the business to generate profits.
This cannot be used as an absolute rule because so many factors play into both parts of the ratio. Businesses are very complex things operating in an even more complex world.
But a high P/E ratio can indicate a company’s stock is overvalued and may be doomed for a correction. While a low P/E ratio can indicate the opposite, that a company is undervalued on the stock market relative to its earning power.
Well after cratering 56% in price in less than 50 days, Ford stock now has an absolutely eye popping P/E ratio of 495(!). The S&P 500 composite P/E ratio at the end of trading Tuesday was 18.41. General Motors’ (NYSE:GM) was 4.62.
The once powerhouse American car company has come back from the dead before, but with the crucial strategy of penetrating China’s market. Ford can forget about that after coronavirus.
Ford’s revenue already collapsed by a staggering 38% in China last quarter. The company, and by extension Ford stock, appears doomed now that coronavirus has decimated China’s economy.
After the U.S.-China trade war and massive capital misallocation, China was already headed for recession before the coronavirus pandemic. Now a global recession is certain, and it will be very severe in China, hardest hit by the pandemic.
In addition to a catastrophic demand shock in a recession sparked by coronavirus, Ford’s production has taken a huge hit. Like other auto manufacturers it’s shut down factories. On Tuesday Ford extended the shutdown from Mar. 30 to indefinitely.
Ford stock did get a sharp lift on Tuesday with news that it’s teaming up with 3M to produce ventilators and protective equipment for hospitals.
But that is a side show. Ford’s business is selling cars and trucks. Failing a federal bailout, it could be out of business soon.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
Last modified: September 23, 2020 1:46 PM