Ford’s Stock Faces A Big Decline (NYSE:F)

This story was originally written for subscribers of Reading The Markets, an SA marketplace service. The story has been updated as of Jan. 24, 2023

Ford (NYSE:F) won’t report fourth quarterly results until Feb. 2, but that isn’t stopping an options trader from making a bet on the stock’s demise. Shares of the automaker have rallied by 13% since Dec. 28.

Analysts estimate the company had a solid fourth quarter, with earnings climbing by 15% to $0.62 per share on revenue growth of 14% to $40.2 billion. But more important is what the company will say for 2023 because currently earnings are seen falling by 9.4% to $1.77 per share, while revenue is expected to grow by 1.2% to $151.1 billion.

With earnings expected to fall due to declining operating profits, the stock seems fairly valued at best, trading at 7.5 times 2023 earnings estimates. Pre-COVID, the equity peaked three times, around 7.5 times one-year forward earnings, and while that is a very low multiple, this is what the stock has historically traded at. Between 2020 and 2021 was an anomaly driven by cheap liquidity and nothing more.

Given the stock’s poor earnings and revenue growth outlook, the shares can trade down to around 5.5 times earnings and still be within its historical trading range.

Bets Build For Lower Stock Prices

The poor earnings outlook and elevated PE ratio could be one reason an options trader has a bearish view on the equity, making a wager that Ford will drop below $11 by the March 17, 2023, expiration date. The open interest for the March 17, $11 puts rose by 45,000 contracts on Jan. 19. The data showed the puts traded on the ASK and were bought for about $0.33 per contract. It would suggest that the stock is trading below $10.67 by the expiration for the trader to start earning a profit, a decline of more than 16.4% from the closing price on Jan. 23.

Not only has there been a bearish put transaction placed on Ford, but the daily short volume has also been steadily rising, suggesting traders see the stock falling in the future.

Additionally, the rate to borrow shares of Ford has increased recently, a sign of increasing demand of traders to short the shares of Ford.

Technical Downtrend

Technically, the stock is trending lower and forming what appears to be a descending triangle, which is a bearish continuation pattern. For now, though the big level of support remains at $11, a break of that support level could send the stock sharply lower back towards $7.5 to $8.

The RSI has turned negative and is trending lower, suggesting that the bears are firmly in charge of this stock.

If Ford reports better-than-expected results and the share surge above the downtrend around $13.50, the stock could run higher to around $14.50 to $14.75. Still, at this point, the onus is going to be on the company to prove to the market that the stock price deserves to rise because, based on the earnings outlook, the valuation, the technical chart, and the market’s opinion, the shares may be poised to go much lower.