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How Ford’s Valuation Compares

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Ford’s valuation ratios

As of April 17, 2018, Ford’s (F) forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio was 13.3x. The ratio, which has inched up over the last few quarters, is higher than many competitors’. General Motors’ (GM) and Fiat Chrysler’s (FCAU) forward EV-to-EBITDA ratios were 7.1x and 2.4x, respectively.

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Comparing forward price-to-earnings ratios

Ford’s forward PE (price-to-earnings) ratio, calculated based on future earnings estimates, was 7.3x, higher than GM’s 6.2x and FCAU’s 6.0x. Ferrari’s (RACE) valuation ratios are typically much higher than those of other key auto industry players (IYK), partly because Ferrari sells only luxury vehicles, which yield wider profit margins than mass-market vehicles.

What could be factored in?

Legacy auto company Ford, which has a proven earnings track record, is sensitive to factors impacting its risk profile. These factors also act as key drivers for its valuation ratio.

Analysts’ slightly optimistic estimate for Ford’s 1Q18 earnings, as discussed earlier in this series, may have factored into its valuation ratio, which could be why its forward ratio is much higher. Weaker-than-expected earnings, especially continued weakness in profitability, could impact its valuation after its 1Q18 earnings event. Continue to the next part to learn about key support and resistance levels in Ford stock before its 1Q18 earnings event.

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