(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Ford Motor Co. (F) has sparked optimism among some investors with its strategy to cut back on selling cars, and instead focus on sales of sport utility vehicles and trucks, most notably its powerful Ford F-150 brand. Ford's shares have rebounded this year after falling drastically last year.

But that good news may be overshadowed by powerful forces weighing on the automaker. The company reported weak fourth-quarter results in January, a reminder that Ford's revenue has yet to reach the peak it attained 14 years ago, in 2005. Now, analysts see revenue struggles continuing through 2021. It is so bad for Ford that revenue is expected to grow less than 1% to $149.19 billion during that period, excluding revenue from its credit division.

Earnings, on the other hand, are forecast to have meaningful growth, rising to $1.82 per share in 2021 from $1.30 in 2018. That's growth of nearly 40%. It would suggest that analysts are betting massively on the company growing margins.

Can Ford Achieve The Needed Margin Expansion

Margin growth has been a significant challenge for Ford over the past several quarters. Operating margins have declined from 7.6% in June of 2015 to less than 1% in the December 2018 quarter. It may be hard for Ford to strip out enough expenses in future quarters to get the kind of earnings growth analysts are looking for without growing top-line revenue faster.

One way Ford plans to boost margins is by discontinuing sales of all but two of its sedans and hatchbacks. Only the Focus sedan and the legendary sports car, the Mustang, will remain in production. That will allow Ford to focus on selling its higher-margin SUVs and pickup trucks, which are expected to represent nearly 90% of North American production by next year.

A Big Gamble

Ford's move has considerable risks. It's gambling that consumer trends and habits toward owning bigger vehicles will remain strong. A severe recession or spike in gas prices could make gas-guzzling trucks too expensive to own. To be sure, the new hybrid versions of these trucks could help, but the cost to buy hybrid vehicles also comes with a higher price tag.

Rough Road

These are some of the significant challenges that Ford’s relatively new CEO Jim Hackett is facing. Hackett took over the job from Mark Fields in May 2017 as the consumer auto market approached its peak. Since taking the helm, Ford’s margins have fallen sharply, and Ford has lost a quarter of its market value. Additionally, the stock’s valuation has fallen to its lowest level in two years.

The Stock Is Facing Steep Declines

The outlook for Ford’s stock looks bearish based on technical charts. The stock is now resting on a technical support level at $8 and should the stock fall below that point, it could fall to roughly $6.75. Additionally, the relative strength index is trending lower and pointing to further losses.

Options betting also is extremely bearish with the number of puts at the $7.87 strike price massively outweighing the calls by over 5 to 1 for expiration on January 17, 2020, with roughly 97,000 open put contracts. For the buyer of those to puts to earn a profit, the stock would need to fall to $6.97, a drop of almost 17% from its current price of $8.35 on February 11.

The technical and options data highlight analysts' cautious view about the company. That means Ford investors should brace for rough terrain ahead.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past 12 months. Past performance is not indicative of future performance.