Sign Up For The Next
New Constructs Webinar






Navigation

For Ask Matt readers: Ford (F) — Dangerous Rating

Monday, February 28th, 2011

For readers of Ask Matt’s recent column: Should I hold onto Ford stock or is it time to sell?

Ford gets our Dangerous Rating. This means F has poor quality-of-earnings and an expensive valuation. For example, F’s ROIC at 0.6% is in our Bottom Quintile. And the valuation of the current stock price ($15.07) implies the company will grow its profits at 10% compounded annually for over 40 years. The takeaway: avoid this stock. See details in our free report.

Ford is also used as on of the Case Studies in our latest Red Flag research: “Hidden One-Time Items Distort Earnings“. For example, since 2005, Ford has buried at least $1.7 billion annually of one-time charges within operating line items on its income statement. In 2008 alone, the company buried over $8.5 billion of one-time charges in line items like “Cost of sales”. These charges cause Ford’s reported earnings to understate, meaningfully, F’s normal operating profitability and cause F’s stock to plunge to multi-year lows. In the following years, once investors realized the normal profitability of the business was much better than indicated by 2008 GAAP earnings, the stock soared back to over $15 per share. Our case study on Ford shows how to find and rectify hidden items for Ford is in our free report on Hidden Items.

Suggested Stories

3 Comments

  1. varadha says:

    Terrific, yet simple analysis. I’ve always been a fan of ROIC as a measure of capital efficiency and believe that no size/growth outperformance can replace the quest for efficiency.

    Sort of like a big gas guzzling v8 that needs ever increasing gallons of fuel to keep its engine running

  2. David says:

    But Angie’s $90 per user acquisition cost is going to go away. That’s what their approach probably is. How would their outlook be if that $90 cost dropped down to a total cost of $3 per user?

  3. David:

    That would be great, but cost per user acquisition is not something that’s very easy for a company to fix. ANGI can slash their marketing budget to the bone, but then they would stop acquiring new members. They would probably lose members in fact, as their membership renewal rate is at ~75% and declining. If they cut marketing expense by ~95% as you seem to be suggesting, ANGI might be able to eke out 1 year of slight profits, but they would start shedding members and losing money very quickly. ANGI’s only hope is to keep its marketing budget high and hope it can reach the scale and brand awareness to be able to sustain its business while scaling back marketing costs enough to turn a profit. The fact that ANGI’s revenue growth is slowing down even as its marketing costs keep increasing makes it very unlikely it will achieve that goal.

Leave a Message

Your email address will not be published. Required fields are marked *