Ford (NYSE:F) has had a tough time in 2018. Thanks to a confluence of headwinds ranging from tariffs pushing up input costs to higher interest rates dragging down demand, Ford stock tumbled from $13 in early January to $8 in mid-October.

But, this selloff in Ford stock has suddenly and dramatically changed course.

It all started with a strong double-beat third-quarter earnings report on October 24 that affirmed that things really aren’t on the cusp of disaster at Ford. Instead, while operations aren’t great, they aren’t awful, either. Ford stock popped. Then, Wall Street jumped on the rally. Specifically, Goldman Sachs upgraded Ford stock to “Buy” on the belief that earnings will start to grow again after next year.

All together, over the past few days, Ford stock has rallied from $8 to above $9.50. This is the biggest rally Ford has had since August/September 2017.

Now, the important question: can it last?

Sure. F stock was really beaten up at $8, and this earnings season implies broadly that the global economy isn’t heading for a recession like everyone thought. As such, Ford stock has room to rebound from a depressed base.

But, this rally won’t go on forever. Ford still faces some major secular headwinds, and a result, valuation and limited growth will ultimately cap this rally. I think this cap will come into play around $10. As such, the rally in Ford stock looks good to $10, but bounces above that level are selling opportunities.

Secular Headwinds Remain for Ford Stock

Although recent quarterly earnings affirm that Ford is doing just fine and not on the cusp of disaster, they also didn’t eradicate any of the secular headwinds which depress long-term growth prospects for Ford. Those headwinds include higher interest rates, lower car ownership rates and lower market share.

On the higher-interest-rates front, the Fed hasn’t backed off on its hawkish tone despite recent stock market volatility. As such, it looks like rates are only going higher. As they have gone higher over the past few quarters, automotive demand in the U.S. has tapered off. And, as these rates continue to climb higher over the next several quarters, auto demand will continue to taper off, likely at an accelerated rate. This is a medium- to long-term headwind for Ford that will depress U.S. auto demand.

Meanwhile, car ownership rates are dropping for the first time in several decades. This new trend of declining car ownership rates appears to be only beginning. Ride-sharing and the at-home economy have redefined transportation, and forced consumers to question the need for a car in highly accessible urban areas. As ride-sharing and at-home economy trends gain more traction over the next several years, car ownership rates should continue to drop. This is another medium- to long-term headwind for Ford that will depress auto demand.

The last major headwind is the electric vehicle revolution. Granted, Ford appears to finally be on the ball with respect to this revolution. But, entrants like Tesla (NASDAQ:TSLA) and NIO (NYSE:NIO) are new EV competitors that weren’t here before. Inevitably, they will steal some market share, and Ford will lose some market share. Against the backdrop of declining car ownership rates, that means Ford will be taking home less market of a smaller market in the future.

Overall, the long-term fundamentals supporting F stock are still quite poor. Yes, the company promises to have relatively stable demand and margins over the next several years so long as we don’t head into a recession. But, big growth is unlikely due to secular headwinds, and as such, Ford stock isn’t due for explosive gains in a long-term window.

F Stock Rally Looks Good To $10

Because long-term growth prospects for Ford are muted by secular headwinds, the current rally in Ford stock will last until valuation friction kicks in. Reasonable growth assumptions imply that valuation friction will kick in around $10.

Ford hasn’t been much of a big revenue growth company over the past several years. That won’t change anytime soon. If anything, revenue growth rates will deteriorate with declining car ownership rates and market share losses. Thus, over the next few years, Ford is likely a 0-1% revenue growth company.

During that stretch, management hopes to grow EBIT margins to 8%. But, sluggish revenue growth in a rising cost, falling demand environment with bigger competition doesn’t exactly imply a favorable outlook for EBIT margins to go from 4.4% today to 8% in five years. Instead, the more likely path forward is EBIT margins to track gradually higher to somewhere between 5% and 8% over the next few years. At the midpoint, that implies EBIT margins in five years of 6.5%.

Under those growth assumptions, I reasonably think Ford can do about $2 in earnings per share in fiscal 2023. Ford stock normally trades at 7.5X forward earnings. Applying that historically normal valuation to $2, we arrive at a fiscal 2022 price target of $15. Discounted back by 10% per year, that equates to a fiscal 2018 price target of just over $10.

Thus, I think the current rally in Ford stock has runway to $10.

Bottom Line on Ford Stock

At $8, F stock was undervalued. Consequently, once investors realized that the company wasn’t on the brink of disaster, Ford stock rallied in a big way.

But, secular headwinds continue to challenge the long-term bull thesis, meaning that valuation will cap this rally. Valuation becomes a problem around $10. At those levels, I think the rally in Ford stock will max out.

As of this writing, Luke Lango was long F and TSLA.