With Ford (F) Struggling, Is Now the Time to Buy?

Owning shares in Ford (F) is a frustrating experience. Shares are down 14 percent so far in 2016 and completely flat from 2012, when the company reinstated its dividend after putting it on hold during the financial crisis.

Ford’s poor performance came to a head at the end of July, when it announced worse-than-expected earnings and warned that reaching its guidance for the year will be a challenge. Even though revenue rose to $39.5 billion from $37.3 billion, shares in Ford had their worst day in five years by tumbling 8 percent.

On the surface, Ford’s woeful performance looks like doom and gloom. Look closer, however, and you’ll see a company that’s — at least on paper — undervalued and ripe for buying. However, some investors have been saying that about Ford for years now with little to show for their efforts. Ford is a complicated company that deserves some attention.

Problems in China

One of the reasons Ford’s shares dropped is because its profits came in well below expectations. There are a number of factors for this, but the biggest is that Ford underperformed in China. There’s no doubt the company has positioned itself in China to take advantage of the massive growth in consumer spending, yet Ford finds itself in a crowded field.

It has invested billions in expanding its operations in China. Despite that investment, Ford reported a loss in the region in light of a weaker Chinese Yuan and heightened competition.

Despite the poor quarter, things are already looking up for Ford. Its July sales were up 15 percent compared to July 2016. Sales so far in 2016 are up 6 percent from 2015. Those figures might not be enough to raise investor confidence, but they do show that Ford is making progress in a difficult market.

The Case for Ford

The auto industry isn’t particularly desirable for many investors. While Tesla (TSLA) continues its somewhat impossible trajectory despite not making money, the “old-fashioned” manufacturers are languishing.

Ford trades with a meager 5.38 price-earnings ratio. Toyota (TM) has a low 7.74 P/E ratio. General Motors (GM) is the worst of the bunch, with a particularly low 3.88 P/E ratio.

Investors don’t think too much of the auto industry. Ford, however, is arguably in one of the strongest financial positions it’s been in for years. After some rough years, the company’s debt-to-equity ratio is the lowest it’s been in more than a decade. Profits have been consistent, and the latest drop might be something of an overreaction. Just a quarter before, Ford reported its best earnings ever, and the stock needle barely moved.

A Tricky Situation

No matter how strongly the company is positioned, shares only seem to go down rather than up. Great news only sends shares slightly upward, yet a hint of bad news pushes the stock down sharply. This American auto manufacturer weathers economic uncertainty better than some of its competitors, but you couldn’t tell by looking at its share prices.

So is a Ford a bust of a stock or is an undervalued gem? The truth is probably somewhere in the middle. The stock has been technically sound for a while now, yet not many investors will want to play the waiting game for when — and if — Ford will get the share price it seems to deserve.

There are legitimate concerns about a prolonged slowdown in China and Europe, which could have a big impact on Ford if those fears come true. However, Ford has weathered worse storms and it’s financially strong enough to survive and even thrive in those difficult conditions.

In the meantime, don’t expect Ford’s shares to behave in a rational way.