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Investors might be worried because the S&P 500 index is down 7% so far in 2025 (as of April 24). There's a general level of fear out there, specifically about the direction the economy is headed in. In fact, more people are expecting a recession to happen.
Ford Motor Company (NYSE: F) has been a bright spot. Its shares have climbed 1% this year, dramatically outperforming the broader index. However, there's been no shortage of volatility. Maybe the market is giving you a sign to take a closer look at Ford.
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Should investors buy this automotive stock right now?
Driving recurring revenue
Ford's management team is very optimistic about one segment in particular. Ford Pro, which sells vehicles and services to commercial and government customers, stands out. Revenue was up 15% in 2024, boosted by a 27% jump in subscriptions. It reported a 13.5% operating margin, which is much better than the business overall.
Executives tout the nature of demand within this division. "I have never in my 40 years, had a chance to have reoccurring revenue where the company is not as susceptible to economic cycles and gas prices, and we can do that with Ford Pro," CEO Jim Farley said on the Q4 2024 earnings call. The segment is forecasting $7.5 billion to $8 billion in operating income for 2025.
So many reasons to be bearish
Ford has been around for more than a century. It's important to the American economy, as the company has a massive workforce of nearly 90,000 employees in the U.S. Some might even call it a cultural icon.
However, there are many negative attributes to consider that indicate this is a low-quality business. In the past 10 years, Ford's return on invested capital has averaged a disappointing 2.6%. Investors need to see a much higher number here, as it indicates the presence of an economic moat. Evidently, Ford doesn't possess durable competitive advantages.
Investors should realize that the company's long-term growth prospects aren't anything to write home about. Total vehicle unit sales in the U.S. in March were about the same as exactly 20 years before, showcasing just how mature the industry is.
We also can't ignore external forces. For example, tariffs will surely impact Ford's cost structure. This will lead to higher prices for consumers, which could pressure sales. What's more, the state of the economy can have a direct effect on demand for new car purchases, making Ford's business cyclical.