Ford stock redux: Drive one, but don't buy the stock

— -- Q: What do you think of Ford (F) now?

As I wrote Jan. 23, Ford is making both financial and product moves that are letting it pull ahead of its domestic competition.

And since that time, investors have grown to appreciate Ford to a greater degree, pushing the stock up nearly 240%, from $1.80 a share then, while the Standard & Poor's 500 rose just 10%.

It's since fallen back some, but it's still more than doubled this year. Does this mean it's safe to invest in Ford, again? Or, has the recent run-up run its course? To find out, I'll put the stock through the four steps we use at Ask Matt:

Step 1: Risk vs. reward. When you take a risk on a stock, you want to make sure you're properly rewarded. Downloading Ford's trading history back to 1980, we see the company generated an average annual compound rate of price appreciation of 11.9%. This is a slightly better-than-average return; the S&P 500 posted a 10.1% annual return in the same time frame, says IFA.com.

But here's the rub. If you owned Ford, you accepted much higher risk — standard deviation — of 50 percentage points. That's much higher than the 15.5 percentage point risk of the S&P 500 during the period. So to get a 17.8% higher return you accepted 223% higher risk. That's not a great tradeoff and should stop many investors right there.

Step 2: Measure the stock's discounted cash flow. Some investors decide if a stock is pricey by comparing its price to the present value of its expected cash flows. It's a complicated analysis made simple with a system from NewConstructs. When I run Ford's stock, I find it's rated "dangeous." In other words, the stock is expensive relative to the cash the company is expected to generate over its lifetime. That's a huge red flag.

Step 3: Compare the stock's current valuation to its historical range. BetterInvesting's Stock Selection Guide can help. If the company can increase earnings 8% a year the next five years, that would still put the stock in the "sell" range. That's a red light for investors who believe the price-to-earnings ratio will return to historical norms. Investors must also believe the company can maintain a high growth rate. There's another caveat to this analysis. It's based on just 2004 and 2005 P-E ratios because the company lost money in 2006, 2007 and 2008.