I love a good growth stock. Who doesn’t? Growth stocks are a great way to make money investing. Finding companies whose growth potential outweighs its current valuation is getting more and more difficult in this market. The Dow and S&P 500 are up and to put it frankly, many companies are starting to get expensive. I have managed to find one rather well known company whose shares appear to be trading very cheap despite the rise over the past year.
That company is Ford (F).
Ford is my absolute favorite American automaker stock.
Here’s what I like about Ford.
- Shares trade at 8.65 times earnings.
- Shares trade at just 8.3 times forward earnings.
- The stock is selling at just 0.45 times earnings growth.
- The stock is selling at 0.46 times sales.
- Revenue is growing again at $133 billion dollars compared to 3 straight years of negative growth.
- Positive free cash flow the past 2 years after a brutal 2008.
- EPS has more than doubled. (Before that there were 3 straight years of negative EPS)
- Rising gross margins and operating margins. (19.3% and 5.3% respectively which are the highest since 2004)
- ROA improving at 3.02%. (That’s low but better than the 1% the previous year)
- Ford is improving its balance sheet. (Cash increased to $32 billion and long term debt decreased to $65 billion dollars)
- Current ratio of 2.3 and a quick ratio of 2.4.
- Double digit earnings growth expected at 19%.
There are some negatives. The company still has a book value of -.40 cents and revenue did decline 3% last quarter.
I would conservatively place a 12 multiple on Ford which is in line with its automotive competitors. I would discount the projected earnings growth to 15%. Using those metrics, Ford would earn $2.51 in 2012 and $2.89 in 2013. That would place the stock’s value at $34.75. That’s roughly double where it is today.
Disclosure: I do own shares of Ford.
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