Prediction: Ferrari is a better buy than Ford for the next decade

Since hitting a record high of $511.75 in July last year, Ferrari (NYSE: RACE) stock has backtracked. Shares currently trade 28% below their peak (as of July 20). Investors were concerned with management's lower-than-expected long-term forecast revealed last October. And the company's first fully electric vehicle wasn't well received.

Ford Motor Company (NYSE: F) is currently winning the race by a mile. The domestic automotive stock has climbed 26% in the past 12 months. Investors cheered management's latest move of launching a battery segment to meet robust demand amid the ongoing artificial intelligence boom.

But I'm less optimistic about Ford. My prediction is that the Italian luxury brand will deliver a better return than the Detroit carmaker over the coming decade.

Ferrari has a superior competitive position

Ford was founded in 1903. That long history doesn't diminish the fact that this business doesn't necessarily operate from the strongest competitive position. This is generally true for mass-market automakers.

Competition is incredibly fierce. This comes from domestic peers. However, international rivals have also given Ford a run for its money, particularly Asian manufacturers.

And demand is highly cyclical. Consumer behavior, which is dependent on macroeconomic forces, can dictate revenue trends.

Ferrari's competitive position is excellent. It possesses arguably the widest economic moat in the auto sector. Its brand is the star of the show. The Ferrari name is globally recognized for its rich heritage of racing performance and exceptional design. This is a luxury brand.

That standing is bolstered by management's focus on keeping a lid on supply, intended to support outsize demand. Consequently, Ferrari has pricing power. Some of its limited-run models, such as the F80 unveiled in 2024, are produced in extremely low quantities and carry starting price tags in the seven figures.

The same demand dynamics that apply to Ford are irrelevant to Ferrari. The latter's customers, who are the wealthiest people in the world, are resilient to economic headwinds.

Profitability is what drives stock performance

Ferrari's brand strength directly hits the income statement. During the first three months of this year, it registered an outstanding operating margin of 29.7%, with credit going to the aforementioned pricing power. This is light-years ahead of Ford's 5.4%.

Besides margins, profit growth should grab investors' attention. In the past decade, Ferrari's diluted earnings per share (EPS) rose at a compound annual rate of 18.7%. This is a robust pace that has contributed to its share price gaining 787% over the last 10 years.

Ford's trend is much more disappointing. It posted diluted EPS of $0.61 in Q1 2016. That figure barely increased, coming in at $0.63 in the most recent quarter, equating to a 10-year annualized rate of 0.3%. This explains why Ford shares have risen by less than 3% in the past decade.

The overall automotive industry is extremely mature, limiting Ford's potential. But Ferrari has a much better growth runway. It sold 13,640 cars in 2025, up 50% from 9,119 in 2020. The niche focus adds greater revenue upside as it sells more vehicles over time.

Pay the premium

Valuation is one area where Ford comes out on top, and it's not even close. Its cheap valuation is certainly due to its very capital-intensive business, characterized by low growth and earnings.

Its shares trade at a price-to-earnings (P/E) ratio of 11.3, representing a massive 69% discount to Ferrari's multiple, which currently sits at 35.9. Investors shouldn't take this as a reason to avoid the stock, though, since this is such a high-quality enterprise.

Ferrari's P/E ratio has fallen by 31% over the past 12 months. Compared to the rest of the market, this doesn't appear to be a bargain opportunity. However, not all companies should be viewed in a similar light. Ferrari might even be deserving of a valuation expansion if it continues to deliver strong financial results.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ferrari. The Motley Fool has a disclosure policy.