Ford Motor Company shares have outperformed the S&P 500 in the last year, generating a 12-month total return of 174.4 percent.
Earnings
A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. For comparison, the S&P 500’s PE is at about 30, nearly double its long-term average of 15.9.Growth
Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 21.3. Ford’s forward earnings multiple of 10.9 is roughly half the S&P 500’s, making Ford’s stock look undervalued.Ford’s forward PE ratio is also about a third of its consumer discretionary sector peers, which are averaging a 31.1 forward earnings multiple.
Yet when it comes to evaluating a stock, earnings aren’t everything.
The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 1.0; Ford’s PEG is 0.4, suggesting Ford is significantly undervalued after accounting for its growth.
Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.27, well above its long-term average of 1.63. Ford’s PS ratio is a miniscule 0.64, less than a fifth of the S&P 500 average as a whole.
