Ford (NYSE:F) surged higher in Friday trading. It moved higher by 10.7%, its biggest one-day gain since 2009. This happened as the company beat its earnings estimates for the first quarter. Ford stock has also made substantial gains since the lows of last December.
However, this also leaves traders wondering whether Ford has more room to run. Although Ford could continue to move higher, traders might want to grow cautious on the equity.
Ford blew away earnings estimates. For the first quarter, the company earned 44 cents per share. This came in 17 cents per share higher than Wall Street had predicted.
The automaker also averted an expected drop in earnings as Ford earned 43 cents per share in the same quarter last year. Revenues also came in at $37.24 billion. In bidding the stock higher, traders overlooked the 4.5% decline in revenues from year-ago levels.
Ford has become one of the surprises in this year’s market. After Friday’s 10.7% surge, the stock has risen by nearly 40% since its Dec. 24 lows. Back in February, I called Ford a nice trade for a short trek. Since I made that call on Feb. 14, it has risen by more than 23%.
A Look at the Future of Ford Stock
Strategically, the company also appears to respond to market trends. The move to largely exit the passenger car business has likely helped to keep profits higher. The company also announced a $500 million investment in Rivian Automotive. Under the partnership, the two companies will develop a portfolio of next-generation battery electric vehicles.
The automaker also plans to have 100 self-driving cars on the road by the end of this year. On the earnings call, Ford announced it wanted to surpass the likes of Tesla (NASDAQ:TSLA) and GM (NYSE:GM) by testing in extreme weather and intensely urbanized settings.
Still, from these levels, the picture on Ford looks uncertain. On the one hand, the company may have more room to run. The current Ford stock price of around $10.40 per share comes in well below the high of $12.15 per share it saw last June. It has also seen a continuous slide since hitting a high above $17 per share back in 2014.
Other metrics look favorable as well. The forward price-to-earnings (PE) ratio comes in at about 8.4. Over the last five years, Ford has traded at an average 9.5 times earnings.
However, the Dearborn, Michigan-based automaker could face challenges that may hamper future growth. Analysts predict earnings of $1.33 per share for 2020, and they project that they will not climb beyond that level. One five-year projection has the profits of Ford stock falling by an average of 8.25% per year over the next five years.
Moreover, dividends offer a mixed picture. At a 60-cent per share annual payout, the current dividend yield of almost 5.8% seems generous. However, that payout matches the level paid in 2015, and it had fallen from the 85-cent per share level in 2016.
The Bottom Line on Ford Stock
The recent surge higher in Ford calls for some caution. In many respects, Ford looks healthy. The company has avoided a predicted drop in earnings and appears positioned to remain relevant amid technological change.
However, the equity has moved about 40% higher in a short time. While it still has not returned to its 52-week high, the projections of stagnant profit growth could limit increases in the stock price.
Moreover, while the dividend pays a high yield, the size of future payouts appears uncertain amid declines in recent years.
Ford stock has enjoyed a nice run. The equity may continue to run higher and payouts may remain generous. Still, with all the uncertainty, investors should remain cautious.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.