Apple Inc. (AAPL)vs Ford Motor Company (F)

Quick verdict

Ford yields 4.18% and lost money over the trailing twelve months. Those two facts sit at the centre of this comparison and have to be reconciled before anything else matters. Ford's net margin was -3.93% and its return on equity -18.9%, which is why its payout ratio reads as negative: the dividend is not currently covered by earnings. Apple, by contrast, earned a 27.62% net margin and paid out just 12.13% of earnings for its 0.35% yield. Our framework scores Ford 3.5 and Apple 2.5, awarding Ford valuation, the balance sheet and income, and Apple growth and quality. The income verdict is the one that most deserves scrutiny.

2-year relative performance

At-a-glance comparison

Business model and revenue mix

Ford builds vehicles in Auto Manufacturers within Consumer Cyclical; Apple builds consumer electronics within Technology. Both are hardware businesses, and the comparison of their gross margins shows what separates a commodity manufacturer from one with pricing power: Ford converts 10.77% of revenue into gross profit, Apple 48.65%. That four-and-a-half-fold gap exists before either company has spent a dollar on research, marketing or distribution. Ford's operating margin of 1.97% leaves almost nothing between operational performance and a loss, which is precisely what happened at the net line. Ford's beta of 1.85 against Apple's 1.09, and its 65.5% worst five-year drawdown against Apple's 33.43%, reflect how much more sensitive a thin-margin manufacturer is to demand shifts.

Valuation

Ford is the cheaper stock, though the comparison requires care because its earnings are negative. Its price-to-earnings of -7.72 cannot be read against Apple's 34.92 in any meaningful way; it only confirms a loss. Where the comparison does work is on sales and book value: Ford trades at 0.3 times sales against Apple's 9.63, and 1.6 times book against 41.81. A price-to-sales ratio of 0.3 means the market values Ford at less than a third of its annual revenue, which is characteristic of manufacturers with thin margins and heavy capital requirements. Ford's free-cash-flow yield of 12.71% against Apple's 3.04% is the most striking figure on this page and the strongest argument in its favour.

Growth profile

Apple is the faster grower, though neither is expanding quickly. Apple's revenue compounded at 6.43% over three years; Ford's at 1.23%, barely above flat. We have not cited a three-year earnings growth figure for Ford because its earnings crossed from positive to negative during the period, and a percentage change measured across zero is an artefact of the arithmetic rather than a growth rate anyone can act on. Our data provider reported such a figure and we have suppressed it. What remains is a company growing revenue at roughly 1% a year while losing money at the net line, against one growing at 6.43% with a 27.62% net margin.

Profitability and quality

Apple wins this factor without qualification. Its 33.17% operating margin compares with Ford's 1.97%, its 27.62% net margin with Ford's -3.93%, and its 51.87% return on invested capital with Ford's 0.98%. A return on invested capital below 1% means Ford generated almost no profit on the capital employed in the business, and a negative return on equity of -18.9% means it reduced book value over the period. Apple's own 137.18% return on equity is flattered by buybacks having shrunk its equity base, but adjusting for that changes nothing about the direction of this comparison. Ford's difficulty is structural: a 10.77% gross margin leaves very little room for anything to go wrong.

Balance-sheet risk

Our framework awards the balance sheet to Ford, and that verdict rests on liquidity rather than leverage. Ford's current ratio of 1.09 modestly exceeds Apple's 1.00, meaning current assets cover near-term liabilities slightly more than once. Ford's interest cover of 2.67 times is the figure that should concern a prospective buyer: it means operating profit covers interest obligations under three times over, which is thin, particularly for a cyclical manufacturer whose earnings fall sharply in a downturn. Apple's position needs less discussion, with net debt at 0.27 times EBITDA and cash generation that makes its exact current ratio close to irrelevant. Ford's automotive financing arm complicates its consolidated leverage figures, so we have not drawn conclusions from them here.

Price performance and shareholder returns

Ford has been the better holding over one year, Apple over three. Ford returned 25.61% over the past year against Apple's 31.11%, so Apple actually leads there too, but Ford's 7.72% year to date trails Apple's 12.89% by less than its longer record would suggest. Over three years Apple annualised 19.74% against Ford's 4.12%. Ford has been considerably more volatile, with a 65.5% worst five-year drawdown against Apple's 33.43% and a beta of 1.85 against 1.09. The income comparison is where Ford leads decisively: 4.18% against 0.35%, roughly twelve times the yield. Whether that dividend persists while earnings are negative is the open question. Past performance never guarantees future results.

Which stock fits which investor

Income investors are pointed toward Ford by our framework, and its 4.18% yield is genuinely substantial against Apple's 0.35%. The caveat matters as much as the number: with a negative net margin, that dividend is currently being paid from sources other than current earnings, which is not sustainable indefinitely. Value investors will also find Ford cheaper, at 0.3 times sales and 1.6 times book, with a 12.71% free-cash-flow yield. Growth and quality investors should both prefer Apple, which is growing faster and earning a return on capital roughly fifty times higher. Ford is a deep-value and income proposition with real balance-sheet questions attached; Apple is a premium-priced compounder with none.

• Value: F
• Growth: AAPL
• Income: F
• Quality: AAPL

Frequently asked questions

Is Apple or Ford the better buy right now?

Ford scores 3.5 on our six-factor framework and Apple 2.5, winning valuation, balance sheet and income. But Ford lost money over the trailing period, with a -3.93% net margin, while Apple earned 27.62%. Ford is the cheaper stock; Apple is by far the stronger business.

Is Ford's dividend safe?

Our data cannot answer that definitively, but it raises the question. Ford yields 4.18% while reporting a negative net margin of -3.93%, which produces a negative payout ratio — the dividend is not currently covered by earnings. Its interest cover of 2.67 times is also thin for a cyclical manufacturer.

Which stock is cheaper, AAPL or F?

Ford, substantially. It trades at 0.3 times sales against Apple's 9.63 and 1.6 times book against 41.81. Its price-to-earnings of -7.72 is not comparable to Apple's 34.92 because Ford's earnings are negative. Its free-cash-flow yield of 12.71% far exceeds Apple's 3.04%.

Why is no EPS growth figure shown for Ford?

Ford's earnings crossed from positive to negative during the three-year window, and a percentage change measured across zero is an arithmetic artefact rather than a meaningful growth rate. Our provider supplied such a figure and we suppressed it rather than publish a number that cannot be interpreted.

Which stock is more volatile?

Ford. Its beta of 1.85 exceeds Apple's 1.09, and its worst five-year drawdown was 65.5% against Apple's 33.43%. A manufacturer operating on a 10.77% gross margin is structurally more sensitive to shifts in demand than one operating on 48.65%.

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