Ford – Earlybirds Invest

Ford (F 3.44%) is a rare business because it’s been around for so long. Having been founded in 1903, the automaker has been an important part of the American economy. And its ongoing relevance shows just how successful it has been in its industry.

This auto stock is having a great year thus far. As of Aug. 19, it’s up 17% in 2025. But can Ford turn its investors into millionaires over the long term? Here’s what you should know about the Detroit car company.

A young, formally dressed investor stretched out in an empty bathtub is throwing money into the air.

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Looking at Ford’s business under the hood

With a history that spans more than 120 years, Ford has built up brand awareness simply from being around for such a long time. This brand recognition is also supported by the fact that the company’s F-series pickups have been the best-selling trucks in the U.S. for 48 straight years. That’s an unbelievable track record.

However, I think a deeper look at this company will reveal that it’s not a high-quality operation that investors will want to own for a long time. There are some key reasons why.

Ford isn’t going to post strong revenue growth consistently. Unit volumes were up 14.2% in the U.S. in the second quarter (ended June 30), thanks to significant demand during Ford’s employee-pricing program to boost sales amid trade and tariff uncertainties. This pace isn’t sustainable. Between 2014 and 2024, Ford’s top line increased at a compound annual rate of just 2.5%, a trend that seems likely to continue going forward.

The global auto industry is very mature in the sense that unit volumes won’t increase in any meaningful way on a yearly basis. Ford is making a push into electric vehicles, a part of the industry with potential, but this specific segment posted a $1.3 billion operating loss in Q2.

Cyclicality is another reason that investors should tread with caution. Cars are huge buying decisions for consumers, as opposed to being small, repeat purchases. This makes Ford’s demand highly sensitive to economic forces. If there’s a mild downturn or even a severe recession, sales could face significant pressure.

As a result, Ford’s low profitability, as demonstrated by its Q2 adjusted operating margin of 4.3% and adjusted return on invested capital of 10.1%, will take a hit. In fact, it wouldn’t be a surprise to see the business post a net loss in an adverse economic scenario. Ford’s profitability leaves much to be desired, and it’s yet another reason this isn’t a great company.

Ford won’t make investors rich

In the past decade, Ford shares have generated a total return of just 33% (as of Aug. 19). At the same time, the S&P 500 index produced a total return of 267%. This disappointing track record adds fuel to the argument above that Ford isn’t a high-quality company. A smart rule of thumb to follow generally is that good businesses should produce returns that beat the market over the long term.

This stock won’t make investors rich. The chance for investors to achieve meaningful capital appreciation is very low, in my opinion. Owning Ford provides much less upside than owning a competitively advantaged technology stock, like Alphabet, for example, that registers strong earnings growth over the long run.

But if you’re someone who likes to generate income from the stocks in your portfolio, then Ford might fit the bill. The current dividend yield is a hefty 5.18%.

And if paying a cheap valuation is something you prioritize, then Ford stock’s forward price-to-earnings ratio of 10.3 might be an attractive proposition. It’s worth mentioning, though, that betting on a quick gain from the valuation multiple expanding isn’t really a game that long-term investors should be playing.

Ford is a symbol of American industrialism, but it’s not a millionaire-making stock.

Ford’s momentum is impressive

Investors don’t typically view Ford as a fast-growing enterprise. However, the company’s growth this year has been impressive. Unit sales soared 16.3% in May. This follows double-digit year-over-year gains in March and April as well.

After President Trump announced a 25% tariff on imported vehicles in April, Ford’s leadership team made a strategic move to boost demand. The business implemented an employee pricing program for customers. This will be in effect until the Fourth of July weekend.

Ford registered strong gains with its internal combustion and hybrid cars, but electric vehicles (EVs) remained a notable weak point. Unit sales for EVs were down 25% in May, underscoring the troubles facing this niche of the auto market. Consumer demand for what many thought was the future of the industry is slowing.

High capital intensity

Investors who intend to own a stock for the next five or 10 years need to figure out if they’re looking at a high-quality business. I believe there is a best way to test this, at least from a purely quantitative perspective.

During the first quarter, Ford reported a return on invested capital (ROIC) of 8.6%. This is too low for me; I’d only look at companies that have a figure of more than 20% here, as it indicates the ability to allocate capital in a lucrative manner. Ford’s weighted average cost of capital (WACC), on the other hand, is estimated at 11.1%, so the business could very well be destroying value with its decisions.

Ideally, investors want to buy and hold businesses that report ROIC that’s well ahead of their WACC. I don’t think Ford will ever fall into this category. The nature of the auto industry requires companies to invest huge sums in product development, manufacturing capacity, labor, and marketing. And this is just table stakes. That’s why Ford’s profitability is low.

Distracted by a cheap valuation and hefty dividend

Making a successful investment decision involves two key aspects, in my view. The first step is to identify a high-quality business. The next is to make sure you buy shares at a compelling valuation, to give yourself a margin of safety.

On the valuation front, Ford deserves a closer look. As of June 11, shares are trading hands at a price-to-earnings ratio of 8.6. For comparison’s sake, the S&P 500 trades at a multiple of 23.4. This discount is hard to ignore. Consequently, it means that Ford stock offers a hefty dividend yield of 5.6%.

The stock might be cheap, but as previously mentioned, I don’t think Ford is a high-quality business. The dividend payout, for instance, is far from durable. Should an economic downturn occur, as they happen occasionally, Ford’s profits will undoubtedly come under pressure. And management could pause dividends until the economy improves.

In the past decade, shares have produced a total return of just 21%. That track record speaks for itself. Even though the stock price sits below $11, investors focused on capital appreciation should avoid Ford.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.