General Motors: an opportunity for investors, despite headwinds


I am neutral on General Motors Company (DG) because the strong competition it faces, as well as its slightly elevated valuation multiples, have offset Wall Street’s uptrend on the stock.

General Motors is an American multinational automaker based in Michigan. The company was founded in 1908 as a holding company and restructured in 2009, following bankruptcy during the Great Financial Crisis. (See GM stock charts on TipRanks)

Strengths

General Motors manufactures its products in several countries. It has twelve brands under its name, the four main brands being Chevrolet, Buick, GMC and Cadillac. The company also owns or holds interests in other brands like Baojun, IMM, etc. She is also involved in a number of joint ventures.

General Motors has four main lines of business: GM North America, GM International Operations, Cruise and GM Financial. It also meets the needs of the army under GM Defense.

At its peak, General Motors had a 50% market share in the United States, and from 1931 to 2007, the company was the largest automaker in the world.

Recent results

In the third quarter of 2021, General Motors reported a global market share of 8.4%, which is down from 10.4% in the previous year in the same quarter.

Total reported revenue for the quarter was $ 26.8 billion, with an EBIT value of $ 2.9 billion, down from the previous year. These profits come mainly from the GMNA and GM Financial segments, at $ 2.1 billion and $ 1.1 billion, respectively.

The company’s earnings per share have also declined, largely due to the semiconductor shortage, and currently stands at $ 1.52 per share. Meanwhile, free cash flow declined year over year due to interruptions in production and work in progress inventories.

Focusing on key contributing segments, GMNA reported net sales of $ 20.6 billion, although the company’s market share has fallen nearly 50% since the same quarter of the year. last. GM Financial reported EBIT of $ 1.1 billion, with cash and auto debt at $ 32.7 billion and $ 16.8 billion, respectively. GM Financial also provided the Cruise brand with a $ 5 billion line of credit to finance the purchase of motor vehicles. General Motors also reported GM China Auto JV net sales of $ 10.3 billion, which is not consolidated in GM’s financial results.

Assessment measures

General Motors stock looks reasonably priced at the moment, as the EV / EBITDA ratio is 7.2x compared to its 5-year average of 6.7x. In addition, its forward normalized price / earnings ratio is 9.7x compared to its 5-year average of 7.8x, and its price / free cash flow ratio is 12.3x compared to its 5-year average. years of 15.5x.

The Taking of Wall Street

From Wall Street analysts, General Motors gets a strong buy analyst consensus, based on 12 buy ratings, 1 hold rating and 0 sell ratings over the past 3 months. Additionally, General Motors’ average price target of $ 73.38 places the upside potential at 25.39%.

Summary and conclusions

General Motors has a long and rich history as one of the largest automobile manufacturing companies in the world. That said, in recent years, younger competitors like Tesla have overtaken it in market capitalization and technological prowess, as the global auto market has shifted towards electric vehicles. General Motors was slower than Tesla (TSLA) to adapt to changing conditions.

That said, the company remains reasonably priced based on historical metrics, analysts are very bullish on the stock here, and the company is investing aggressively to catch up with Tesla and other competitors.

As a result, investors could probably do worse than invest here, but the historic valuation multiples imply they might want to wait for a pullback before adding stocks.

Disclosure: At the time of publication, Samuel Smith does not have a position in any of the titles mentioned in this article.

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