Can Ford Become a $100 Billion Company Once Again?

To say that Ford Motor Company (F 0.56%) hasn’t been a worthwhile investment would be putting it lightly. Even if you include dividends, this car manufacturer’s total return has lagged the broader S&P 500 in the last three-, five-, and 10-year periods.

But this auto stock has had periods of strong performance. Shares skyrocketed 136% in 2021 as they were on the recovery path following the quick pandemic dip. After this monumental gain, Ford’s market cap briefly exceeded $100 billion in early 2022.

It’s been a disappointing journey since then, as that valuation has virtually been cut in half, today at $50 billion (as of May 2). Ford’s bulls must be wondering if the business can ever get back to the $100 billion mark again.

Pressing the gas pedal

Ford’s market cap has never been higher than what it was in January 2022. Investors were clearly extremely excited about the trajectory the company was on at that time. It makes sense why.

In 2021, Ford reported revenue of $136 billion, which was up 7% year over year. While unit volumes declined, the top-line growth was driven by favorable mix and pricing. This was when the global economy was dealing with supply chain issues.

Those financial results were spectacularly better than the numbers in 2020. That year, Ford saw its sales plummet 18% as the pandemic forced factory and dealership shutdowns. The company also posted a huge operating loss of $4.4 billion due to the sales dip.

Expectations were low right before the company started producing better results. That created the perfect setup for investors to achieve monster returns. It’s no surprise that Ford’s price-to-earnings (P/E) ratio expanded significantly as sentiment quickly shifted from bearish to bullish on the back of improving fundamentals.

What needs to happen

Ford is in a much better place today than it was a few years ago as the industry stabilizes. Revenue jumped 18% last year before rising slightly in Q1. The leadership team sees adjusted free cash flow coming in at $7 billion (at the midpoint) this year, up from prior guidance. Shares have climbed 26% in the past six months.

But for the business to get back to a $100 billion market cap, a lot of positive developments need to happen. For starters, Ford must start registering steady sales growth across all its segments. The commercial division is crushing it now, while the blue segment (gas-powered vehicles) and e segment (electric vehicles) just posted volume decreases. Ford will also probably need to gain market share in the industry.

There’s no question that profits will need to rise in a consistent manner. The challenge here is that the auto industry is so capital-intensive, low-margin, and cyclical that it makes things extremely difficult for Ford. Its operating income was down substantially in 2023.

The EV segment is also dragging down results of the overall company. Ford posted a $4.7 billion operating loss in this division last year. I think for the business to reach a $100 billion valuation, investors will want to see major improvements here.

And of course, should the fundamentals get better over time, it’s easy to believe Ford’s valuation can start expanding. The stock currently trades at a P/E multiple of 12.8. It probably won’t get as high as it was at the end of 2021, which was close to 30, but there could be some expansion.

I don’t necessarily think this outcome is out of the question. For what it’s worth, Ford’s market cap has expanded 84% in the past two decades. Should this track record continue, perhaps in the next 30 or so years, a $100 billion valuation is in the realm of possibility.

But that points to just how long it could take until that milestone is achieved once again. In my opinion, investors who seek higher-returning stocks should look elsewhere.