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Slide 11: Valuing Ford's stock is challenging. The company's equity has negative book value. It pays no dividends, and is not expected to any time soon, so you cannot use the dividend discount model. The price, therefore, reflects expected growth in the company. Yet the qualitative analysis reveals difficult conditions. It is also worth noting that while Ford turned a strong profit in 2010, it saw its cash flow from operations decline. This indicates that the apparent growth trajectory may be illusory. Basically, from both the quantitative perspective and the qualitative perspective, it is hard to argue that Ford is worth $15 a share. The company has turned itself around, but now the hard part begins. And until Ford shows that it can handle the hard part, including higher gas prices, its unfunded pension obligations and fending off intense competition, it will continue to be overvalued at these levels.
Slide 12: What you can take away from this is that Ford has indeed done a great job in turning itself around. But it was so far down, so far gone, so far in the red, that this turnaround really doesn't mean much for the company's future. It is well-positioned, but the markets may be overexuberant with respect to the firm's prospects. There are a lot challenges ahead. It will be interesting to see if Ford can meet those challenges.
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